Systems, methods and computer program products for electronic trading of financial instruments

ABSTRACT

An internet-protocol based anonymous trading system which enables traders to identify bids and offers which they are eligible to trade based upon a color coded methodology which gives the trader credit preference information about the potential counterparty while still maintaining the anonymity of the potential counterparty. To that end, each bid or offer is prescreened against all possible counterparties&#39; credit information in the system and each counterparty sees a unique color coded trading interface based upon their particular credit preference combinations and the others in the system. The system then shows all prices in the system, and the color coding tells the trader which prices he is able to trade, and also shows him the full depth of the market, including those the trader is unable to trade.

CROSS-REFERENCE TO RELATED APPLICATION

This application claims benefit of co-pending U.S. ProvisionalApplication No. 60/062,410, entitled “Systems and Methods for ElectronicTrading of Financial Contracts,” and filed Oct. 14, 1997. In addition,the present application is related to the following co-pending, commonlyed U.S. applications, each of which is incorporated by reference as ifset forth in full:

“Systems, Methods And Computer Program Products For Subject-BasedAddressing In An Electronic Trading System,” filed Oct. 12, 1998, andaccorded application Ser. No. ______;

“Systems, Methods And Computer Program Products For Monitoring CreditRisks In Electronic Trading Systems,” filed Oct. 12, 1998, and accordedapplication Ser. No. ______; and

“Switch Engine For Risk Position Discovery In An Electronic TradingSystem,” filed Oct. 12, 1998, and accorded application Ser. No. ______.

FIELD OF THE INVENTION

The present invention generally relates to brokerage systems andmethods, and more particularly, to the electronic trading of financialinstruments such as derivatives.

BACKGROUND OF THE INVENTION

In recent years, commodity exchanges have become more and more dependentupon electronic trading systems. The older manual methods by whichtrades were conducted have given way to advanced computer systems thathave generally mimicked the manual methods of old. These relatively newelectronic trading systems have many advantages over the manual systems,including the ability to provide such features as greater accuracy,reduced labor cost, real time market information, more efficientcommunications over greater distances, and automated record keeping.However, because the markets in which these commodities are being tedare so vastly different from the descriptions of the instruments to thetransaction methodologies, electronic trading systems are generallylimited to a specific met such as features, cash, oil, stock,securities, etc., and sometimes even to a specific commodity within asingle market.

An example of one such automated trading system designed for theanonymous trading of foreign currencies is described in U.S. Pat. Nos.5,077,665 and 5,136,501, both issued to Silverman et al. and assigned toReuters Limited of London. In the Silverman et al. system, a singlecentral host computer maintains a central database that may consist ofthe trading instruments available for trade, credit information, andvarious bids and offers that are present throughout the system. The hostcomputer may then use this information to match active bids and offersbased on matching criteria which may include the gross counterpartycredit limit between counterparties to a potential matching transaction,price, and available quantity. To that end, each client site mayestablish, and may subsequently vary or reset, a credit limit for eachpossible counterparty. The credit limits may be used by the hostcomputer to establish the gross counterparty credit limit for eachpossible pair of parties and which may be equal to the minimum of theremaining credit (i.e., initial credit limit less any applicabletransactions that have already been executed) from a first party to asecond party and from the second party to the first party. The hostcomputer may block completion of an otherwise eligible matchingtransaction on between a given pair of potential counterparties when thetransaction has an associated value in excess of the applicable grosscredit limit. In the Silverman et al. system, the various client sitecomputers (also referred to as keystations) merely maintain and displaya restricted subset of the information available at the host computersuch as a predetermined number of the best bids and offers, andcommunicate credit and other transaction orientated information to thehost computer for execution. However, in an attempt to preserve theanonymity of the parties, the client sites may not have access to thecredit limits set by their possible counterparties, or even to theidentification of any other party to a particular transaction untilafter a transaction has been completed.

Thus, in the Silverman et al. system, confidential counterpart creditlimit data is apparently maintained and utilized as part of the tradematching process by the central host computer. As a consequence, eachclient site may not have the ability to determine, prior to committingto buy or sell at a displayed price from one or more anonymouscounterparties, whether it is in fact eligible to respond to any of thebids or offers currently being displayed. Further, the credit limitappears to be merely a cap value (or credit line) on the amount oftrading one party will enter into with another party. It has little tono relationship to the credit risk the other party represents since thefinancial commitment associated with the financial instruments tradedwith this system ends at the consummation of the underlying contract.Thus, a cap value may be sufficient in this particular circumstance. Thecentral host computer may not utilize the credit information until aftera match has been found between counterparties to determine if thecounterparties have sufficient credit with one another to execute thetrade.

Consequently, unless a trader attempts to execute a trade at the bestprice currently displayed on the trader's screen, the trader using oneof the anonymous matching systems may not know whether the trader hascredit with, and is willing to extend credit to, the anonymouscounterparty offering (i.e., bidding) the best price currently displayedon the trader's screen. Thus, the trader does not know whether anyattempt to buy or sell at the displayed price may be subsequentlyinvalidated by the system for lack of such credit. The Silverman et al.system also fails to provide for dialogue between the parties, much lessanonymous dialogue which may facilitate the execution of a trade thatmight otherwise not occur.

Reuters Limited has apparently expanded the system described inSilverman et al. to include Forward Foreign Exchange contracts which arederivative instruments. However, as opposed to offering a settlementrisk system that enables credit analysis prior to face-to-facesettlement, the Reuters limited stem introduces the concept of softmatching which make trades on the basis of credit risk rather thansettlement risk. Thus, a trade is not confirmed until both partiesobtain subsequent credit approval. Either party can cancel thetransaction under the guise of no credit available to the counterpartyonce they know who is the counterparty. Accordingly, the Reuters Limitedsystem is reportedly an unpopular solution to derivative trading via anelectronic trading system.

Another automated trading system is disclosed in U.S. Pat. No. 5,375,055issued to Togher et al. and assigned to Foreign Exchange TransactionServices, Inc. The Togher et al. system is an anonymous trading systemwhich may identify the best bids and offers from those counterpartieswith which each client site is currently eligible to deal, whilemaintaining the anonymity of the potential counterparty and theconfidentiality of any specific credit limitations imposed by theanonymous potential counterparty. This system is apparently designed torun as a closed system, with dedicated desktop terminals connected tovarious local computer centers, which are in turn connected to regionalcomputers.

In the Togher et al. system, each client site may only be able to viewone foreign currency at a time per screen. The Togher et al. system isfurther limited by the fact that each client site may provide the systemwith only limited credit information for each potential counterparty(for example, a one bit flag indicating whether a predetermined limithas already been exceeded), and by the fact that each bid or offer for aparticular type of financial instrument is apparently prescreened by thesystem for compatibility with that limited credit information beforecalculating an anonymous dealable price for presentation to the tradersdealing with that particular financial instrument. The prescreening inTogher et al. is a simple check to determine whether any credit remainsbetween the two counties to the pot transaction, and thus may beperformed using a simple yes/no preauthorization matrix.

The preauthorization matrixes may be maintained at each of the severalregional nodes (also referred to as distributed nodes) of a distributedprocessing communication network, with each such regional node beingcosted by corresponding individual links of the communications networkto the respective client sites for which it is responsible fordistributing market information including customized dealable bid andoffer prices, and global best prices.

The sensitive credit limit data indicating how much credit a particularclient site is willing to extend to each possible counterparty ispreferably maintained at an access node associated with that particularclient, and a simple yes/no indication of whether the entity (forexample, a trader, a trading floor, or a bank) associated with thatparticular client site is willing to transact business with a particularcounterparty is transmitted to the other nodes of the communicationsnetwork.

To further limit the data received and processed by each of the relevantregional node computers (i.e., the regional nodes closest to theparticular client site and/or closest to the particular counterparty),merely the changes in the credit state between a particular client siteand a particular counterparty (i.e., that credit is no longer availableor credit is now available) may be transmitted to the distributionnodes, and any credit state information relevant to transactions betweentwo client sites both associated with other distribution nodes may bealtogether ignored.

In the Togher et al. system, if either of the two applicable creditlimits has not previously been exceeded between a particular pair ofcounterparties, then the system displays the entire bid or offer as adealable transaction, but apparently permits each client site to blockany above-limit portion of any resultant buy or sell transaction duringa subsequent deal execution/verification process. This may, however, addadditional time consuming steps for the users of the Togher et al.system. Alternatively, possibly at the option of the party by or forwhom the low limit has been set, the entire transaction may be blocked.As a second alternative, a preauthorization matrix may indicate whethersufficient credit remains to execute a predetermined standard dealamount in addition to, or instead of, a mere indication as to whetherany credit from a particular potential counterparty had already beenused up. In such an alternate embodiment of the Togher et al. system, itmight also be possible to display to each trader two dealable prices:one at which at least the predetermined standard amount is available,and a second one at which only a small amount may be available. Thus,individual orders are not independently treated, and the user may nothave the ability to look though the bids and offers and deal at a worstprice, if the user so chooses because of a difference in counterpartiescredit qualities.

In accordance with another aspect of the Togher et al. system, at leasta first trader having an open quote that is displayable as the bestdealable or regular dealable quote at any of the other trading floors isautomatically alerted that their bid (offer) quotation is the best priceavailable to at least one potential counterparty with whom mutual creditexists, and thus could be hit (taken) at any time. Similarly, at leastif the quoter'bid (offer) quote is not currently the best with at leastone trading floor but is thus subject to immediately being hit (taken)by a trader at that trading floor, then the quoter is preferably alsoalerted if his/her quote is joined (i.e., equal to in price, but laterin time) to such a best dealable or regular dealable price from anothertrading floor. In other words, in the Togher et al. system, theauto-matching process does not enable the active trader to select aprice other than the best price to trade. This may fore the trader toaccept what the system offers, even if the trader would prefer adifferent counterparty for credit reasons. In addition, the Togher etal. system does not show the trader the total depth of the market, onlythose prices which are dealable, and thus, may fail to give the trader acomplete picture of the market. The trader is also limited to thequantity stated. No provision is made for the modification ornegotiation of the quantity or other terms of the trade.

The systems described above are such that they focus on overnightsettlement risk. These systems are apparently incapable of dealing withthe actual credit requirements of a variety of different individualfinancial instruments simultaneously, or a counterparty's long-termability to meet these requirements. As a result, these systems generallyhave only been deployed in the markets where settlement takes place in afew days of the transaction, and there are no continuous and ongoingcredit requirements or obligations between the counterparties.Specially, as a result of these limitations, these designs may not beable to support the anonymous trading of financial instruments such asinterest rate swaps, caps and many other financial products. They may beunable to accommodate these more complex financial instruments because,among other things, these systems apparently treat all financialinstruments alike, and therefore, may be incapable of handling morecomplex financial instruments which require a determination about thefinancial strength of the opposing counterparties. Trades conducted withsome financial instruments such as derivatives create multi-yearfinancial commitments, and therefore, mere credit limit or credit capsystems are insufficient in measuring and managing an institution'scredit risk.

Accordingly, it is noted that no known system is designed to operatewith derivative products such as interest rate swaps, caps, floors,forward rate agreements (FRA), interest rate basis swaps, interest rateoptions, foreign exchange, switches, or any other over the counterderivative instruments. Derivatives are considered by many to be toocomplex to be efficiently handled within an electronic trading system.Specifically, derivative products are typically define by certain termsand conditions, and the different types of derivatives products aredefined by different sets of terms and conditions. For example, an FRAis generally defined by a start time, an end time, an over date, and afloating rate option, while an interest rate swap is generally definedby a start time, an end time, an over date, a floating rate option, afrequency of the fixed coupons, a basis, and a special rule(s) asapplicable with some currencies. Accordingly, the variances in thespecific information necessary to adequately define the differentderivative products has apparently been a deterrence to the developmentof an electronic derivatives trading system.

Yet another deficiency of the prior art systems is the inability toautomatically determine one's position (i.e., credit risk position), andthe inability to identify possible counterparties with offsettingpositions for initiating a transaction. No know electronic tradingsystem has been able to provide this information on a real-time basis.This strikes to the essence of the derivatives market which is basedupon large financial institutions being able to manage their credit riskand market risk on a daily basis.

Thus, a heretofore unsatisfied need exist in the industry for anautomated system for distributing anonymous price and positioninformation via a customized financial instrument symbology that enablestraders to effectuate credit-based trades of complex instruments such asthose in the derivatives markets.

SUMMARY OF THE INVENTION

It is therefore an object of the present invention to provide animproved electronic trading system for trading derivative financialinstruments.

It is another object to the present invention to provide anonymouscredit-based trading of financial instruments.

It is another object to the present invention to provide substantiallyreal-time status information for selectable markets.

It is another object to the present invention to provide flexiblecontrol of outstanding and executed orders within an electronic tradingsystem.

It is an object of the present invention to allow users of an electronictrading system to pace passive orders and active orders.

It is an object of the present invention to provide electronic meanswhich enable traders to communicate or broadcast interest in a specificfinancial instrument anonymously to other traders who may respond with arequest to trade.

These and other objects of the present invention are provided for bysystems, methods, and computer program products that provide forelectronic trading based on the client/server model, including a centralprocessing center (i.e., server) having multiple server modules and aplurality of individual trader workstations (i.e., clients), all ofwhich are operationally interconnected, preferably via anInternet-protocol network. Because of the open architecture of thesystem, it is possible that the system may run within the context of anInternet browser on a user's existing desktop computer. At the user'sworkstation, the user may select from a variety of different interfacesthat enable the user to follow markets, enter and execute trades, andmonitor outstanding and historical orders and executions. Thus, the useris provided an in-depth view of the market and essentially completecontrol over the order load process.

The market information provided to the user is coded with creditpreference data generated by referencing the complex credit preferencesinputted by each user regarding all possible counterparties. Thus,potential counterparties are then able to identify which orders they areeligible to trade based upon the coded credit preference data. The useris also provided with a feature whereby the user can input an interestreset risks portfolio into the system and then view his/her interestrate reset risk position relative to other counterparties that haveinputted their respective interest rate reset risks portfolios in orderto determine possible offsetting positions. The user is also providedwith a facility for placing orders for various financial instruments viaan auction process whereby the system automatically matches all ordersand determines the prices and quantities executed based on severalguidelines including user credit preferences. In addition, the user isprovided with a switch auction facility whereby the user can use theauction process to trade forward rate agreement (FRA) switches withother counterparties utilizing the same credit preference screening.

At the central processing center, multiple server modules operatesimultaneously to perform various functions such as delivery of marketinformation to the user, credit preference verification of a requestedtrade, execution of trades, term negotiation, acknowledgments, positiondiscovery, and auction execution. The central processing center alsoincludes a database which provides persistent storage of informationsuch as historical data, instrument definitions, user creditpreferences, user and business unit data, and historical market data.

At the trader workstations, multiple software modules operatesimultaneously to perform various functions at the front end of thesystem such as providing user interfaces, performing credit preferenceverification, and receiving inputted user data such as trade data andcredit preferences. The trader workstations are preferably implementedon desktop computers of the users via an Internet browser program, andtherefore, do not require dedicated terminals on the users' desktops.The communication between the trader workstations and the centralprocessing center is preferably based on Internet Protocol (IP), andoperates over the Internet in a secure mode.

In accordance with an embodiment of the present invention, a system forfacilitating derivative trading comprises a communication networkinterconnecting a first user and a second user to a central processingcenter, and a market inventory module associated with the centralprocessing center that provides the first and second users withessentially real-time order information regarding more than onefinancial instrument, wherein the order information includes requests tobuy financial instruments and requests to sell financial instruments. Inaddition, the system may include a trader module associated with each ofthe first and second users for receiving the real-time order informationfrom the central processing center and for presenting the real-timeorder information to the first or second users according to respectiveuser customized profiles. The system may further include a creditpreference module associated with each of the first or second users,wherein the credit preference modules indicate the trade eligibility ofthe respective first and second users for each revest to buy or sell. Inaddition, the system may comprise an execution module associated withthe central processing center that processes a trade initiated by one ofeither the first or second users which desires to trade on an orderposted in the order information by the other of the first and secondusers. In essence, the execution module processes the term negotiationsand will-do-more services. In addition, the system may comprise asettlement module associated with the central processing center forprocessing transactions and generating confirmation notices, which aresubmitted to both parties. The settlement module also calculates thecommission fees.

The credit preference module described above may determine the tradeeligibility based on credit preferences of both the first and secondusers. This system may further include a switch module that receivesinterest rate swap positions from the first and second users, anddetermines relative position information for the first and second users.

In accordance with another embodiment of the present invention, a systemfor facilitating derivative trading, wherein the system includes aplurality of interconnected user nodes configured to exchange orderinformation via a central processing center. The central processingcenter may comprise a first user node including a trader module thatreceives real-time order information and presents the real-time orderinformation to a user according to the customized profiles defined by afirst user, a credit preference module that includes credit preferencedata inputted by the first user for use in determining trade eligibilityof trades proposed in the real-time order information with a seconduser, and an interface to a communications network that interconnectsthe plurality of user nodes. Each user node may finer include a switchmodule that receives interest rate swap positions from the first userand the second user, and that determines relative position informationfor the first user.

In accordance with yet another embodiment of the present invention, asystem for facilitating derivative trading, wherein such system includesa plurality of interconnected first and second users that exchange orderinformation, and wherein each of the first and second users areconnected to a central processing center. The central processing centermay comprise a group server that provides the first and second userswith essentially real-time order information regarding more than onefinancial instrument. The order information preferably includes requeststo buy financial instruments and requests to sell financial instruments.The central processing center may further comprise an execution modulethat can process a trade initiated by one of either the first and secondusers which desires to trade on an order proposed in the orderinformation by the other of the first and second users. This centralprocessing center may further include an interface to a communicationsnetwork that interconnects the plurality of first and second users tothe central processing center.

Other features and advantages of the present invention will becomeapparent to one that is skilled in the art upon examination of thefollowing drawings and detailed description. It is intended that allsuch additional features and advantages be included herein within thescope of the present invention, as defined in the appended claims.Further, it will be appreciated by those of skill in the art that theabove-described systems of the present invention may be provided asmethods or computer readable program means.

BRIEF DESCRIPTION OF TEE DRAWINGS

The file of this patent contains at least one drawing executed in color.Copies of this patent with color drawings will be provided by the Patentand Trademark Office upon request and payment of the necessary fee.

FIG. 1 is a schematic diagram of a computer network implementing anelectronic trading system in accordance with an embodiment of thepresent invention.

FIG. 2 is a block diagram illustrating the architecture andfunctionality of a central processing center in accordance with anembodiment of the present invention.

FIG. 3 is a block diagram illustrating the architecture andfunctionality of a trader system in accordance with an embodiment of thepresent invention.

FIG. 4 is a block digram illustrating the architecture and functionalityof a business unit proxy in accordance with an embodiment of the presentinvention.

FIG. 5 is an example of a command center interface.

FIGS. 6A-6B are examples of different tabbed partitions of a userpreference interface.

FIG. 7 is an example of a credit preference setting interface.

FIGS. 8A and 8B are examples of different tabbed partitions of a modifycredit groups interface.

FIGS. 9A and 9B are examples of the new binary interface and complexpreference interface respectively, which are accessible from the creditpreference setting interface.

FIG. 10 is an example of a business unit information interface.

FIG. 11 is an illustration of the credit preference logic of anembodiment of the present invention.

FIG. 12 is an example of a market entry interface.

FIG. 13 is an example of a symbol definition interface.

FIG. 14A is an example of an passive order interface.

FIG. 14B is an example of an hit order interface.

FIG. 15 is an example of a market detail interface.

FIG. 16 is an example of an outstanding order blotter interface.

FIG. 17 is an example of a client monitor interface.

FIG. 18 is an example of a execution notification and quantitynegotiation interface.

FIG. 19 is an example of a term negotiation interface.

FIG. 20 is an example of a user position portfolio interface.

FIG. 21 is an example of a switch interface.

FIGS. 22A and 22B are examples of an auction interface and a switchauction interface, respectively.

FIG. 23 is an example of a main screen interface in accordance with anembodiment of the present invention.

FIG. 24 is a flowchart of the credit preference feature in accordancewith an embodiment of the present invention.

FIG. 25 is a flowchart of the subject based addressing feature inaccordance with an embodiment of the present invention.

FIG. 26 is a flowchart of the execution of a trade in accordance withthe embodiment of the present invention.

FIGS. 27A and 27B are flowcharts of a trade execution from theperspective of the user posting the order and the user acting on theorder, respectively, and in accordance with an embodiment of the presentinvention.

FIG. 28 is a flowchart of the position discovery feature in accordancewith an embodiment of the present invention.

FIG. 29 is a flowchart of the auction feature in accordance with anembodiment of the present invention.

FIG. 30 is a detailed flowchart of the auction feature in accordancewith an embodiment of the present invention.

FIG. 31 is a flowchart of the calculation of the average auction pricein accordance with an embodiment of the present invention.

FIG. 32 is a flowchart of the matching performed in an auction inaccordance with an embodiment of the present invention.

FIG. 33 is a flowchart of the validation of a resulting order in anauction in accordance with an embodiment of the present invention.

FIG. 34 is a process flow diagram illustrating operations andfunctionality of the central processing center in accordance with anembodiment of the present invention.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS

The present invention now will be described more fully hereinafter withreference to the accompanying drawings, in which preferred embodimentsof the invention are shown. This invention may, however, be embodied inmany different forms and should not be construed as limited to theembodiments set forth herein; rather, these embodiments are provided sothat this disclosure will be thorough and complete, and will fullyconvey the scope of the invention to those skilled in the art. Likenumbers refer to like elements throughout.

I. Introduction

The following description is of a best-contemplated mode of carrying outthe present invention. The systems, methods, and computer programproducts of the present invention have practical application inanonymously trading a very broad cross-section of credit-sensitive,bilateral financial instruments. However, a particular application ofthe present invention described hereinafter is directed to the use ofthe present invention for trading financial instruments in thederivatives market. The scope of the present invention should not belimited to that described hereinafter, but should be determined byreferencing the appended claims.

The present invention provides for a standardized contract definition,and means for matching complex credit preferences of each counterpartybefore a trade is executed. Therefore, potential counterparty users areable to identify bids and offers that they are eligible to trade basedon credit preference information provided before initiating a trade. Thepresent invention also permits users to place passive orders (bids oroffers on the various financial products for other counterparties toactively choose from to hit (bids) or lift (offers), without the postinguser doing anything further) or active orders (where the viewing useractively initiates the trade by selecting passive bids or offers whichare already in the system). This gives a user maximum control over theorder flow process. For instance, there may be a situation whereby thebids in a particular market are higher than the offers, but no tradingis taking place. This situation may occur when the credit quality of thebest offer (which in this case would be below the bid) would not be goodenough for a bidder to be willing to enter into a transaction with thatcounterparty. This is a significant difference from the prior artsystems in which orders are automatically matched if the prices areequal because such prior art systems typically limited the user'scontrol over the order flow.

The present invention also provides financial markets with electronictrading systems and methods for identifying possible counterparties andexecuting trades for forward rate agreement (FRA) switches and otherfinancial products. The present invention further provides the abilityfor the users to place orders for various financial instruments via anauction process that can be one-to-many or many-to-many, whereby thesystem automatically matches all orders and determines the prices andquantities executed on the basis of several guidelines or parameters. Afurther feature of the present invention is an auction trading that isavailable to users, whereby users can use an auction process to tradeFRA switches with the other counterparties. This form of auction isreferred to hereinafter as a switch auction. In the auctions, the priceis preferably pre-determined by the system prior to the auction takingplace. The prices determined by the system are referred to hereafter asthe fair price.

The systems and methods of the present invention are designed to reflectthe fact that financial institutions operate under many differentstructures. In order to accomplish this, the followingconcepts/definitions are provided:

Legal Entity (LE):

-   -   This is the incorporated entity in which contracts are        negotiated on behalf of by users (traders) of the system.

Business Unit (BU):

-   -   This is a grouping of individual users within a Legal Entity        that act together and share attributes such as LE, manager,        address, settlement information, credit preferences (see below),        etc.

Risk Equivalent (RQ):

-   -   This is the unique measure of Risk associated with financial        contracts such that contracts with different attributes can be        compared on a like basis for credit risk purposes.

Credit Preferences (CP):

-   -   This is the model which allows the system to handle different        measures of risk equivalent used by different institutions and        different financial contracts, all with different internal        structures.

Classes of Financial Instruments (CL):

-   -   These are collections of financial contracts which share similar        attributes.

Credit Groups (CG):

-   -   A method to allocate credit preferences across classes of        financial contracts.

User Preferences (UP):

-   -   A method to allow institutions or users to control or manage        access to the functions within the system.

Filters (FI):

-   -   These allow users to limit the mess (i.e., request for price or        request for switch they receive or view.

Symbology (SI):

-   -   This enables users to quickly and easily reference financial        contracts within the system in a systematic manner.

Term Negotiation (IN):

-   -   This is a method which allows users to negotiate non-commercial        terms of contract subsequently to a trade. For example, the        exchange of bonds relating to a spread trade.

Credit Over-Ride Process:

-   -   This process enables a user to disclose his/her identity to a        counterparty to see if they will accept a trade with him/her        even though they initially refused him due to credit issues.

Comprehensive Confirmations:

-   -   This is a confirmation lay-out in order to fully define        bilateral contracts across any classes of financial instruments.

Request For (RF)

-   -   This is a method to broadcast to the other users (subject to        their FI) an interest in a price or market.

II. System Architecture

As will be appreciated by one of ordinary skill in the art, the presentinvention may be embodied as a method, a data processing system, or acomputer program product. Accordingly, the present invention may takethe form of an entirely hardware embodiment, an entirely softwareembodiment or an embodiment combining software and hardware aspects.Furthermore, the present invention may take the form of a computerprogram product on a computer-readable storage medium havingcomputer-readable program code means embodied in the storage medium. Anysuitable computer readable storage medium may be utilize including harddisks, CD-ROW optical storage devices, or magnetic storage devices.

The present invention is described below with reference to blockdiagrams and flowchart illustrations of methods, apparatus (i.e.,systems) and computer program products according to an embodiment of theinvention. It will be understood that each block of the block diagramsand flowchart illustrations, and combinations of blocks in the blockdiagrams and flowchart illustrations, respectively, can be implementedby computer program instructions. These computer program instructionsmay be loaded onto a general purpose computer, special purpose computer,or other programmable data processing apparatus to produce a machine,such that the instructions which execute on the computer or otherprogrammable data processing apparatus create means for implementing thefunctions specified in the flowchart block or blocks.

These computer program instructions may also be stored in acomputer-readable memory that can direct a computer or otherprogrammable data processing apparatus to function in a particularmanner, such that the instructions stored in the computer-readablememory produce an article of manufacture including instruction meanswhich implement the function specified in the flowchart block or blocks.The computer program instructions may also be loaded onto a computer orother programmable data processing apparatus to cause a series ofoperational steps to be performed on the computer or other programmableapparatus to produce a computer implemented process such that theinstructions which execute on the computer or other programmableapparatus provide steps for implementing the functions specified in theflowchart block or blocks.

Accordingly, blocks of the block diagrams and flowchart illustrationssupport combinations of means for performing the specified functions,combinations of steps for performing the specified functions and programinstruction means for performing the specified functions. It will alsobe understood that each block of the block diagrams and flowchartillustrations, and combinations of blocks in the block digrams andflowchart illustrations, can be implemented by special purposehardware-based computer systems which perform the specified functions orsteps, or combinations of special purpose hardware and computerinstructions.

A trading system in accordance with the present invention is anelectronic brokerage system which may use Internet protocol-basedcommunications networks for facilitating the trading (i.e., buying andselling) of financial derivatives by users, each of which is associatedwith the user's own desktop computer system (trader system) located onthe trading floor of a final institution (client site), as describedbelow. At the user's desktop computer system, the present invention ispreferably implemented by a Java-based software program, though othersuitable program languages can be utilized such as dynamic hypertextmarkup language (DHTML), C+ or C++.

As shown in FIG. 1, a trading system 10 in accordance with the presentinvention comprises a central processing center 12 which is incommunication with the client sites 14 via one or more of a variety ofInternet protocol based networks 16. By way of illustration, a privateextranet, a public Internet, and a third party extranet are show, thoughit will be recognized by those skilled in the art that other networkssuch as the Public Switch Telephone Network (PSTN) may be implemented asa network 16. Further, by having multiple networks 16 available, theuser is provided redundancy in case one network experiences a serviceinterruption, and the user is able to choose between the severalnetworks 16 for primary access based on factors such as toll charges orbandwidth.

Each client site 14 includes one or more business unit servers 18 which,among other things, can store copies of the Java applets which can beutilize to implement the present invention. The business unit servers 18may also perform encryption/decryption functions for messages that arereceived and sent over the networks 16. The business unit servers 18 arepreferably connected to the client sites 14 internal data network. Thus,one or more trader workstations 20 may be connected to a business unitserver 18 of a client site 14. Accordingly, a user's own desktopcomputer which is connected to the client's internal data network mayfunction as a trader workstation 20 and run the Java-based software ofthe present invention to enable interaction with other traderworkstations 20 via the central processing center 12. With reference toFIG. 2, illustrated is the central processing center 12 which includes atrade mechanism 30, a group server mechanism 32, auction mechanism 34,and a switch mechanism 35, all in accordance with the present invention.The trade mechanism 30 includes several modules including a marketinventory module 38, an execution module 40, and a settlement module 42.The market inventory module 38 holds the passive orders for each marketand broadcast the same to the trader workstations 20 when new orders arereceived, validates any proposed trade, performs a second and finalcredit preference check that cannot be performed at the traderworkstation 20, validates that both traders are still on-line (i.e.,active), executes the trade, and sends out a status update to thetraders. The execution module 40 receives the executed trade andproposes a trade for a greater quantity if applicable (referred to asthe will-do-more feature), and processes term negotiation if applicable.The settlement module 42 calculates the appropriate commission,generates the confirmation, and sends the confirmation to the twoparties.

The group server mechanism 32 interfaces the trader module 30 with thetrader workstations 20. The central processing center 12 may include aplurality of group server mechanisms 32, each of which preferably servesa subset of the users (i.e., trader workstation) of system 10, thoughthe system 10 may be implemented with only one group server mechanism32. The group server mechanism 32 monitors the connection of each traderworkstation 20 so that log-in and log-out times and usage can bemonitored The group server mechanism 32 also caches market informationbeing viewed at each trader workstation 20 and create an orderidentification code that uniquely identifies that order. The creditpreference information of all users is cached in by the group servermechanism 32 for delivery to each trader workstations 20 when theassociated user logs in. Any changes in the credit preference setting bya trader are detected and forwarded to the trader workstations 20 of theother users.

The switch mechanism 35 is configured to receive a portfolio of interestreset risk for a plurality of users and provide the users with ananonymous view at their relative position to other possiblecounterparties and available trades that may offset the user's interestrate reset risk. The auction mechanism 34 performs a switch auctionfunction whereby orders or FRA's are received from the users andanonymously matched based on an algorithm that takes user creditpreferences into consideration.

The trader mechanism 30, group server mechanism 32, auction/switchauction mechanism 34, and switch mechanism 35 may be collectivelyimplemented as market module 44.

The central processing center 12 includes a processor 50 thatcommunicates with the other elements within the central processingcenter 12 via a system interface 52. An input devise 54, for example akeyboard or a pointing device, is used to input data from a user, and ascreen display device 56, for example, a monitor, is used to output datato the user. A memory 58 within a central processing center 12 includesthe market module 44 and a conventional operating system 60 whichcommunicates with the market module 44 and enables execution of themarket module 44 (including the trade mechanism 30, group servermechanism 32, and auction mechanism 34) by processor 50. An externalcommunication line 62 is provided to interface the central processingcenter 12 with other computer systems or computer-based devices such asnetworks 16. Lastly, a hard disk 64 may be provided as a persistencememory device, as well known to the industry. Preferably, a relationaldatabase 66 resides on the hard disk 64 for maintaining information suchas current state information for each trader workstations 20, user andbusiness unit data, financial instrument definitions, order states,transaction states, confirmation states, historical confirmation andtransaction data, credit preferences of all business units, andhistorical market data. Preferably a relational database 66 resides onthe hard disk 64 for maintaining information such as current stateinformation for each trade workstation 20, user and business unit data,financial instrument definitions, order states, transaction states,confirmation states, historical confirmation and transaction data,credit preferences of all business units, and historical market data.Preferably, the relational database 66 is based on structured querylanguage (SQL) management system, as well known in the industry.

With reference now to FIG. 3, illustrated is an embodiment of the traderworkstations 20 which includes a trader module 70 in accordance with thepresent invention. The trader module 70 may be implemented as acomponent of a Java-capable Internet browser program 72, such asNetscape Communicator® (Netscape Communication Company) or Microsoft®Internet Explorer (Microsoft Corporation) version 3.0 or higher. Thus,in a preferred embodiment, the trader module 70 is a Java-based programthat is downloaded as Java applets for each session and implemented by aJava virtual machine (JVM) 73 within the Internet browser 72. The JVM 73of the Internet browser program 72 may be a stand alone softwareapplication, a plug-in application, or a helper application, all ofwhich is well known in the art. The trader module 70 includes a marketinterface module 74, a credit preference module 76, a symbol module 78,switch module 80, and an auction module 81. The market interface module74 comprises one or more user interfaces for presenting information tothe user. In the context of the present embodiment, a user interface isprovided as a window within the context of the Internet browser program72. However, a user interface in accordance with the present inventionmay take many forms such as a three dimensional virtual reality worldbased on virtual reality modeling language (VRML), an audioreceiver/transmitter, or any other suitable form of interface betweenthe user and trader workstations 20. In a preferred embodiment, themarket interface module 74 comprises a control center interface, marketentry interface, market detail interface switch interface, and auctioninterface, all of which are described in more detail hereinafter.

The credit preference module 76 receives the stored credit preferencesinputted by the user and stored at group server mechanism 32. The storedcredit preferences include preferences directed to the other businessunit's legal entities, and the preferences inputted by the other usersdirected toward the business unit's legal entity of the subject user. Asmentioned above, the credit preference information is preferably storedin the database 66 (FIG. 2). The credit preference module 76 may encodethe order information being presented to the user with the creditpreferences of the user and the credit preferences of counterparty thatposted the order. The credit preference module 76 also performs a creditpreference check for each order when a trade is initiated. Because ofthe potential complexity associated with the different types of creditmethods offered by the present invention, portions of the credit checkprocess may be performed by the market inventory module 38 of thecentral processing center 12. The credit preference module 76 at eachtrader workstation 20 comprises a simplified matrix of yes's and no's,and associated maturities. If the business unit has selected an evenmore complex method (i.e., complex), a unit (such as a risk quotient,i.e., RQ) by maturity is also required. The trader workstation 20 willtherefore not be able to determine whether the full quantity can betraded. Thus, the market inventory module 38 repeats the credit check toensure the very lest credit preferences are used (in case of any latencyin updating the credit preferences at the trader workstations 20) and tocomplete any complex credit preference check for quantity.

The symbol module 78 stores the symbol definitions utilized for thesubject-based addressing of the different financial instruments tradedin the system 10. The symbol module 78 also provides means for definingnew symbols for use with the system 10. The switch module 80 isconfigured to receive interest rate reset risk portfolios from the userwhich are sent to the switch mechanism 35 at the central processingcenter 12. The relative position information generated by the switchmechanism 35 is returned to the switch module 80 which presents theposition information to the user via the market interface module 74. Theauction module 81 is configured to receive multiple or batch orders on asingle instrument at different price levels, and in case of a switchauction, to receive a interest rate reset risk portfolio from the user.The inputted orders or portfolio is sent to the auction server 34 at thecentral precessing center 12 where the auction or switch auction,respectively, is performed. The resulting matches are returned to theauction module 81 which presents the results to the user via the marketinterface module 74.

The trader workstations 20 includes a processor 82 that communicateswith other elements within the trader via a system interface 84. Aninput device 86, for example, a keyboard or pouting device, is used toinput data from the user, and a screen display device 88, for example, amonitor is used to output data to the user. A memory 90 within thetrader workstations 20 includes the Internet browser program 72 (andthus, the trader module 70) and a conventional operating system 94 whichcommunicates with the Internet browser program 72 and enables executionof the Internet browser program 72 (and thus, the trader module 70) byprocessor 82. It is noted, however that the trader module is preferablyimplemented as a Java-based program that is downloaded into memory 90for the execution during a single session, and the trader workstations20 will not persistently store the trader module 70. Further, as alava-based program, the trader module 70 will be executed on a JVM 73which is a component of the Internet browser program 72.

An external communication link 96 is provided to interface the traderworkstations 20 with other computer systems or computer-based devicessuch as respective business unit servers 18. Lastly, a hard disk 98 maybe provided as a persistent memory device, as well known in theindustry. It is noted that the trader workstation 20 may comprise adesktop computer system as previously mentioned, or alternatively, thetrader workstation 20 may comprise a portable computing device such as anotebook computer, handheld PC, personal digital assistant (PDA) or anyother suitable device capable of running an Internet browser program andcreating a communication link for interfacing with a network.

Therefore, a user of the system 10 is not nearly tied to a specifichardwired terminal, but has a virtual terminal that goes with the userwherever the user has access to a Java capable browser and Internetaccess. The trader module 70 may be implemented as an independentprogram capable of establishing a communication link to the centralprocessing center 12 via the Internet, a local area network (LAN), or awide area network (WAN). Thus, the user can even have access to thesystem 10 via direct modem dial-in to the central processing center 12over the public switched telephone network (PSTN) or Internet.

With reference now to FIG. 4, illustrated is an embodiment of a businessunit server 18 which includes a proxy agent 110 in accordance with thepresent invention. The proxy agent 110 may perform numerous functionsincluding decoding and encoding encrypted messages sent and receivedover networks 16. The proxy agent 110 manages traffic to and from thetrader workstations 20, and may provide other features such as documentcaching and network access control. The proxy agent 110 may improveperformance by storing and supplying frequently requested data to thetrader workstations 20, or by filtering and/or discarding informationfrom the networks 16. Preferably, proxy agent 110 resides on a businessunit server 18 which is part of the respective client sites 14 internaldata networks. However, the system 10 of the present invention may beimplemented without business unit servers 18, whereby the functionalityof the proxy agent 110 may be incorporated into the trader module 70 ofthe respective trader workstation 20, such functionality includingdecoding and encoding encrypted messages, and network management.

The business unit server 18 includes a processor 112 that communicateswith the other elements within the business unit server 18 via a systeminterface 114. An input device 116, for example, a keyboard or pointingdevice, is used to input data from a user, and a screen display device118, for example, a monitor, is used to output data to the user. Amemory 120 within the business unit server 18 includes the proxy agent110 and a conventional operating systems 122 which communicates with theproxy agent 110 and enables execution of the proxy agent 110 byprocessor 112. An external communication link 124 is provided tointerface the business unit server 18 with other computer systems orcomputer/based machines such as networks 16 and trader workstations 20.Lastly, a hard disk 126 may be provided as a persistence memory device,as is well known in the industry. Particularly, the hard disk 126 mayinclude trader data profiles 128 for each of the different traderworkstations 20 associated with the business unit server 18.Alternatively, the trader data may be stored at the central processingcenter 12 so that the trader does not need to re-build his/her screenseach time he/she longs onto the system 10.

Thus, each trader workstations 20 at a client site 14 is able to accessthe system 10 through the Internet browser program 72 operating on theuser's desktop computer. In order to access the system 10, the user mayrun Java-based applets on the desktop computer in the Internet browserprogram 72 which may be uploaded to the desktop computer system by oneof three means: 1) accessing them from the hard disk of the desktopcomputer 2) downloading them across the network from a server on theinternal data network of the client site, or 3) by downloading themdirectly from the central processing center. Once the applets are loadedand running in the desktop computer of the user, the user is then ableto access the system 10 and interact with other trader workstations 20and engage in trading activities. In addition to t at the client sites,a preferred embodiment of the present invention also enables non-traderusers at the client sites 14, such as credit officers and otherinterested/relevant staff, to have access to the invention in the samemanner as the users in order to monitor the trading activities, performcredit control or any other functions.

III. System Features

The following are features of the present invention which provideparticular functionalities and utilities. These features includeinterfaces such as a command center interface, a market entry interface,a market details interface, an outstanding order interface, anhistorical order interface, and functions such as symbology, creditpreference checking, term negotiation, automatic notification, interestrate reset risk switches, and order auction.

When beginning a session on the system 10, a user at a traderworkstation 20 launches the Internet browser program 72 and goes to aparticular address that connects the trader workstation 20 to thecentral processing et 12. This is preferably achieved by typing a knownURL (Universal Resource Locator) in an address field of the Internetbrowser program 72. At the URL entered, the user will be presented witha log-on screen which preferably requires the user to input a user nameand password for identification, verification and security reasons.After the user logs on, the user will download (preferably from proxyagent 110) the lava applets which will run locally on the desktopcomputer comprising the trader workstation 20. Alternatively, the usermay launch a local or network application that uns locally or on anattached server. The application will enable a connection to system 10over network 16, much the sane as numerous dial-up services such as AOL.In addition, other information such as user defined preferences whichare based on the trader's profile will be downloaded to the traderworkstation 20. This may include information on what the user is allowedto trade, what markets the user is interested in monitoring, and otheruser specific information that was previously been defined by the useror another individual such a credit officer or the like.

After the user has successfully logged on and the requisite Java appletshave been downloaded and are running on the JVM 73, the user ispresented with a command center interface 130, as strain FIG. 5, via thescreen display device 88 (FIG. 3). The command center interface 130 isthe front end of the user interface which provides access to all otherfeatures of the present invention, as described below. In an embodimentof the command center interface 130, the command center interface 130 isa pop-up window rendered on the screen display device 88. Note, however,when the command center interface is running, the user may be able toiconize (i.e., minimize) the Internet browser program 72 window, as maybe desirable when the user no longer needs to view the Internet browserprogram 72.

From the command center interface 130, a user can access the features ofthe system 10 which enable the user to monitor and control their tradingin the system 10. Specifically, from the command center interface 130the user can access the following areas of functionality as menu optionson the tool bar 132: a market entry interface (described below withreference to FIG. 12), a credit settings interface (described below withreference to FIG. 10), a switch engine interface (described below withreference to FIG. 22), auction interface (See FIG. 13), tools, a userpreference interface (described below with reference to FIGS. 6A and6B), an historical order blotter interface (described below withreference to FIG. 17), an outstanding older blotter interface (describedbelow with reference to FIG. 16), links to eternal applications such asMarketSheet™ (a trademark of TIBCO, Inc.) (referred to herein as thequote screen and graph screen for illustrative purposes), a logoutinterface (provides secure exit from the system 10), and a helpinterface where detailed on-line help is provided. The menu options thatappear in the tool bar 132 are preferable customizable to a user, andthose described are merely illustrative.

In addition, the command center interface 130 provides a message displaywindow 134 for displaying real-time messages. These messages includesystem information, market information, requests-for-prices (RFPs),requests-for-switch (RFS) or online chat sessions with the users of thesystem 10. Below the message display window 134, the command centerinterface 130 displays the user's name 136, the user's default currency138, the user's business unit 140, and other relevant information. Thebackground color of the message display window preferably changes if theconnection to the central processing center 12 is lost for any reason.

A user preferences interface 148, which is accessible from the commandcenter interface 130 via the tool bar 132, provides a user with userpreference features, such as those illustrated in FIGS. 6A and 6B. InFIG. 6A, a Derv Filters tab enables a user to set request-for-price(RFP) filters for viewing different derivative instruments based on thetype (i.e., class) of derivative instruments and the currency. The usermay also select the manner of presentation (i.e., highlighted or not).From the Derv Filters tab, the user is able to add and remove thederivative instruments from the user's viewing list, that is, the listof instrument that will appear on the message display window 134 of thecommand center interface 130. In FIG. 6B, an Environment tab enables auser to select viewing options to change the appearance of the display.In regard to the color coding display option, it is noted that the usercan select not to have order information color coded by selecting colorblind user. In such a case, other means of notation are utilized such asmarkings or symbols, as may be desirable if the user is color blind orusing a monochrome screen display device 88. User defaults for CreditGroup, Instrument Class and SWF Currency may also be selected via theenvironment tab.

At this point, it is worth noting several functionalities that areintegral to the operation of the present invention. In particular, itwas recognized that in order to achieve an electronic trading system fora wide range of financial contracts, a solution had to be developed tosolve two very critical problems: (1) how to identify financialcontracts, and (2) how to allow institutions to describe their creditpreferences or relationships for these instruments. As solutions tothese problems, the present invention provides the symbology and creditpreference features described below.

The symbology of the present invention was developed because, unlikeforeign currency trading, where the financial instruments are simple,verbally explaining all the terms and conditions of a derivativetransactions can be a laboriously complex process which can take arelatively long period of time to explain. Furthermore, most derivativetransactions are specifically customized to fit a particular need. Withderivatives, as compared to stocks, bonds or other financialinstruments, there are typically many more parameters, such as thematurity, fixed interest rate, floating interest rate, currency,floating rate index, and calculation rates, which are important and arepreferably defined. This complexity has allegedly been one of majorinhibitors to the development and implementation of an efficientinter-dealer electronic trading system for over the counter (OTC)derivatives.

The symbology will, among other things, ensure that the symbols areintuitive to the trading community, allow new symbols to be systemgenerated when new instruments are introduced, and enable detailedconfirmations to be prepared. These goals are generally accomplished bysystematically dividing the parameters, terms, and conditions definingthese derivatives instruments into a four-part subject code. Thisfour-part subject code enables the users to reference these instrumentsvia a form known as subject-based addressing. The four-part subject codeis divided as follows: SOURCE.CLASS.SYMBOL.CURRENCY. Each field of thefour-part subject code is defined below.

The source field of the symbology identifies the source of theinformation. In most cases, this will be the code DNI (i.e., DerivativesNet, Inc.), the assignee of the present invention. If the symbol is usedwithin the system 10, then the source field of the symbology will beassumed to be DNI, and will be omitted. If the symbol is used in alarger context, then the source will be identified. If, for exampletrade data were to be distributed and accessed via a third-party datadistribution system such as the type operated by Reuters, Inc., then thesource field of the subject code would be used.

The class field identifies the principal product class into which thefinancial instrument falls. The class parameter is designed to groupfinancial contracts together which share similar attributes. Forpurposes of the present disclosure, eleven classes of instruments, eachwith distinct characteristics covering forward rate agreements, interestrate swaps, interest rate basis swaps, interest rate options, foreignexchange and switches, will be covered. It is noted that a switch is thesimultaneous purchase and sale of two instruments within the same class.The following is a listing of the eleven classes and the associatedabbreviation for each:

-   -   FRA—forward rate agreement    -   SWP—interest rate swap    -   CAP—interest rate option (cap or floor)    -   SOP—interest rate option (swaption)    -   IBS—interest rate basis swap (floating vs. floating swap)    -   SPT—foreign exchange spot    -   FWD—foreign exchange outright forward    -   FXS—foreign exchange swap    -   SWP—FRA switch    -   SWT—switch any other pair of instruments in the same class    -   CBS—currency basis swap

The symbol field is the principal code used to define each instrument.The symbol field is the most explicit field of the subject code. Thiscomponent of the naming convention enables the underlying structure ofthe derivative instrument to be defined. A simple description (e.g.,1yrswap) could be used, but this does not allow new derivativeinstruments to be easily added. The legend below defines the parametersfor defining each of the different instruments or classes. The symbolrelies on the definitions of the underlying parameters, which will allowfurther break down or definition. For example, FLOPT is a two lettercode which describes the variable rate index to be used, and willinclude: the designated maturity, index name, source, non-business dayconvention and calculation description. The symbols of the presentembodiment are as follows:

-   -   FRA: [START, END, OVER, FLOPT]    -   SWP: [START, END, OVER, FXDBASIS, FLOPT, SPECIAL RULE]    -   CAP: [START, END, OVER, FLOPT, TYPE, STRIKE]    -   SOP: [START, OVER, UNDERLYING SWAP, SOPTYPE, STRIKE, OPTTYPE]    -   IBS: [START, END, OVER, INDEX1, INDEX2, ARREAR]    -   SPT: [CCY1 (terms), CCY2 (base)]    -   FWD: [CCY1 (terms), CCY2 (base), START, END, OVER]    -   FXS: [CCY1 (terms), CCY2 (base), START, END, OVER]    -   SWF: [FLOPT, DAY1, DAY2]    -   SWT: [ASSET1, ASSET2, CLASS]    -   CBS: [START, END, OVER, INDEX1/CCY1, INDEX2/CCY2]        The symbol fields set forth above include the following        parameters:    -   START: The START parameter is the month the contract commences        offset from value date, i.e., 1, 2, 3, . . . , 13, . . . , 360.        The default setting for the START is (0) which represents that a        contract sing with the current month. Also, see OVER below.    -   END: The END parameter is the final mat from value date in        months adjusted for the OVER, and represents the term, i.e., 1,        2, 3, . . . , 13, . . . , 360. If the value date is 28th of        November, then a contact defined as [1,4 over the 12th]        translates into a deal starting on the 12th of January and        maturing on 12th of April.    -   OVER. The OVER parameter represents a specific date in the        appropriate month. For example, if today is the 3rd December        (value date is the 5th of December), then a 1*4 over the 12th        would start the 12th of January, the first date over one month        but less than two months beyond the spot date. This allows a        contract to be defined with any start date between days 1-31.        Note that this represents the actual date and not the number of        days forward. The default setting for the OVER is (0), which        represents spot starting. Two other parameters are        allowable: (1) which represents IMM (International Monetary        Exchange) rolls (the system 10 covers the different IMM        conventions defined by the currency market, that is, the third        Wednesday or second Thursday) and (E) which represents rolls        over the month-end.    -   FXD BASIS: The FXD BASIS parameter is a two-part code covering        the frequency and the basis of the fixed coupons. Examples are        FREQ: M=Monthly, Q=Quarterly, S=Semi-annually, A=Annually,        Z=Zero Coupon plus BASIS F=A/365 Fixed, B=30/360, M=A/360,        I=A/365 ISDA, etc. For instance, SM is semi-annual A/360 or        semi-money].    -   FLOPT: The FLOPT parameter is a two-part code covering the        frequency and the index type of the floating coupons, and        represents the floating rate option as defined by ISDA. The        FLOPT parameter covers frequency, basis and source. Although        each currency may have a default, most indices will be        available. FLOPT examples are L=Libor (TELERATE 3740/50),        P=Pibor (TELERATE 20071), T=Tibor, C=CDOR, B=AUS Bills (REUTERS        BBSW), FF=Fed Funds (HI5), TB=T-bills (H15), PR=Prime (H15),        CP=30 day Commercial Paper, BE=BELO, S=STIBOR, TA=TAM, A=AIBOR,        D=CIBOR (REUTERS DKNK), RL=Libor from Reuters LIBO, and IL=Libor        from Reuters ISDA.    -   CAPTYPE: The CAPTYPE parameter includes definitions for cap (C)        and the floor (F). Thus, in a preferred embodiment, the        following code is utilized: C=Cap, F=Floor.    -   SOPTYPE: The SOPTYPE parameter includes definitions for        payers (P) and receivers (R). Thus, in a preferred embodiment,        the following code is utilized: P=Payers, R=Receivers, X=Call,        Y=Put.    -   OPTYPE: The OPTYPE parameter is the option type: (E)uropean,        (A)merican or (M)ultiple European.    -   STRIKE: The STRIKE parameter indicates the cap or swaption's        exercise rate or price set on the option. Any strike defined in        the symbol as ATM (at-the-money) will be shown as such in this        parameter. In such a case, the percentage or strike will be        agreed through the term negotiated process discussed below.    -   SPECIAL RULE: The SPECIAL RULE parameter is designed for        currencies such as USD and CAD which are in particular market        that use few special conventions for trading. For example,        semi-bond for spread trades and annual money for out-right swaps        are widely used in these markets. The SPECIAL RULE parameter        allows the system 10 to set more than one set of defaults for        any currency. This will allow the system 10 to know when the        exchange of bonds is required following a transaction. The        follow are the rules for the present embodiment:        -   A—Default in all currencies        -   S—USD spread trades. The default in USD is annual money            versus 3 month LIBOR. This rule defines semi-bond spread            trades where bonds are exchanged in the terms negotiation            function described below.        -   2—CAD spread trades. The default in CAD is annual money            (A/365 fixed) versus 3 month CDOR paid semi-annually. This            rule defines semi-annual A/365 fixed versus 3 month CDOR            paid semi-annually where bonds are exchanged in the terms            negotiation function described below.        -   3—AUD long trades. The default for AUD is a            quarterly/quarterly structure. This applies for trades up to            and including three years. In trades over three years, the            convention switches to a semi/semi structure. This rule            supports a semi/semi structure.        -   4—AUD spread trades. Its is conventional to trade swaps in            the AUD market against the bond futures contracts with an            agreement for an exchange for physical.        -   5—GBP spread trades. The default in GBP is annual money            (A/365 fixed) versus 6 month LIBOR. This rule defines            semi-annual A/365 fixed versus 6 month LIBOR where bonds are            exchanged in the terms negotiation function described below.    -   ARREAR: The ARREAR parameter defines when the coupon(s) on a        swap is both set and paid. Most interest rate swaps set their        floating rate coupons at the beginning of the period and pay        them at the end of a coupon period. In an ARREAR swap, however,        the coupon is set and paid at the end of the period. This is        commonly referred to as an arrears swap. The system 10 allows        for this in the form of a basis swap.    -   DAY1/2: The DAY1/2 parameter is the number of calendar days        offset from today to the start of each FRA in an FRA switch        (class SWF). Thus, the DAY1/2 parameter represents the setting        day or date.    -   CCY1/2: The CCY1/2 parameter is the currency code and is defined        by the ISO codes for foreign exchange instruments.    -   UNDERLYING SWAP: The UNDERLYING SWAP parameter is the full        symbol, alais or security ID of the interest rate swap that        underlies an option.    -   INDEX1/2: Basis Swaps are when both sides are a floating rate,        and the index represents the FLOPT plus the currency code of        each index. The first listed index (INDEX1) is paid by the        buyer. Examples include 1L-USD, 3L-GBP, PR-USD, etc. The second        index (INDEX2) is received by the buyer. These are substantially        identical to the codes used in the switch mechanism 35 (FIG. 2).        For currency basis swaps, it is assumed that an exchange of        principals takes place at the start and end on the contract.    -   ASSET1/2: The class SWT is provided to allow for the trading of        switches in other classes other than FRAs. ASSET1 and ASSET2        represent the symbol, alias or security I.D. of each underlying        contract. Note that both should be provided from the same class        of contracts.

SETTLE: The SETTLE parameter is a flag indicating whether a swaption iscash or physical settlement. The default is cash (C).

An example of an order in accordance with the symbology of the presentinvention is DNI.FRA.1,4.0,3L.USD, where DNI is the source, FRA is theclass, .1,4.0,3L is the symbol and USD is the currency. In particular,the symbol field defines a 1 by 4 (i.e., 3 month starting in 1 month)FRA on a 3 month LIBOR spot starting. Note that a comma (,) is used inthe symbol fields as a delimiter. Another example of an order inaccordance with the symbology of the present invention isDNI.SWP.0,60,0,AB,6LA.DEM, where DNI is the source, SWP is the class,0,60,0,AB,6LA is the symbol and DEM is the currency. In particular, thesymbol field defines a five year (60 month) annual bond (AB) versus a 6month LIBOR swap.

Accordingly, the Symbology described above is designed to capture theparameters or commercial terms of a derivatives instrument which affectthe instrument's valuation. The present invention provides a number ofdefault values which are assumed at all times. For example, thefollowing is an exemplary list of system default values.

-   -   ROUNDING: The rates observed on the source page or document will        be used unless otherwise agreed. Rates should be rounded to 5        decimal places after any operation of averaging.    -   RESET DATES: This will be defined with reference to payment        dates. The dates should be offset by the standard number of days        for the currency, for example, two business days for USD.    -   BUSINESS CENTERS TO APPLY TO RESET DAYS: The business days used        to define the current offset for reset dates is defined by the        source and not the payments under the transaction. For example,        London will always be used for LIBOR (the exception is for USD        LIBOR which uses both London and New York City) and New York        City for H.15 rates.    -   INTERPOLATION: Where interpolation is required, a straight-line        method using the reference rates on either side of the desired        date should be used.    -   CALCULATION PERIODS: First and not last convention. Therefore,        the calculation period includes the first payment date but        excludes the next payment date.    -   TERMINATION DATE: All termination dates will be subject to        adjustment if they fall on a non-business day.    -   ADJUST CALCULATION PERIOD: The number of days is assumed to        adjust if the payment days are adjusted for non-business days.    -   TRADE DAY: The trade day is defined relative to the instrument        and currency by the system 10, and not by the location of either        of the parties to the transaction.    -   NET PAYMENTS: Net payments will be assumed for all transactions        completed through the system 10.    -   CANADIAN DOLLAR SWAPS: The convention is to set quarterly and        pay semi-annually using weighted averaging and compounding at        the first rate.    -   DATES: All dates are listed unadjusted for non-business days.

Users may also want to be able to negotiate other parameters which donot affect the valuation of the derivative instrument, but are stillvery important. These parameters are referred to hereinafter asnoncommercial terms. The difference between commercial andnon-commercial terms can be vary ambiguous, and therefore, some of theterms designated as commercial below may be designated as non-commercialand become default settings so as to be part of the symbology parameter.For purposes of illustrating the present invention, non-commercial termshave been given default values which the users can change by negotiatingnew values for these terms between themselves via the system 10.However, both counterparties (users) must agree on the new value toover-ride the system defaults. Table 1 below provides a list ofparameters that maybe negotiated, that is, the non-commercial terms:TABLE 1 PARAMETER DESCRIPTION SETTING Legal The format of the legalISDA, agreement used BBA, FX Month-end Whether coupon payment dates YES,NO roll on month-end dates or not Settle For swaptions whether the CASH,contract is cash or physically PHYSICAL settled First For swaps thefirst variable SETTING Setting rate is normally known for displayed onspot starting instruments. market entry The current setting caninterface. quickly become off market on days where the market movessubstantially. The system will display the default at all time. ATM Foroptions, symbols will be The system set up where the strike is forwardrate defined as at-the-money (note: will be pre-defined strikes willavailable also be available). The actual strike will be negotiatedimmediately following the transaction by the two parties. Spot Forforeign exchange swaps The system (class FXS only) where mid spot theprice is transacted price will in the form of points, be available thespot level to be used will be negotiated immediately following atransaction. Base Switches will be transacted The system in the form ofthe relative mid price price between the two will be instruments beingswitched. available The base rate maybe negotiated immediatelyfollowinga transaction. Bond For USD, CAD and GBP interest The system Exchangerate swaps transacted as a will list spread, the price and number thebenchmark of bonds will be negotiated bonds to immediately following thebe used transaction and will calculate a default price and numberaccording to market convention.

Because the above symbols that comprise the subject-based addressing maybe complex, users may occasionally desire a simpler naming convention toreference the more commonly traded derivative instruments. To facilitatemore rapid referencing of an instrument by a user, the symbology of thepresent invention provides aliases. An alias is merely an abbreviatedversion of the subject-based address for the more commonly used termsfor an instrument. The database 66 (FIG. 2) maintains a unique securityidentifier (such as a numeric code, e.g., 111222) for each symbol whichcan be used in the system 10. Thus, the symbology of the presentinvention enable traders and other users of the system 10 to quicklyreference a particular derivative instrument in the system 10 in threeways: the full symbol, the alias, and the identifier.

The currency field of the symbology contains the code that defines thecurrency of the instrument represented. In a preferred embodiment, thecurrency code is represented by the standard ISO currency codes, i.e.,USD, DEM, JPY, GEP, FRF, NLG, BEF, AUD, CAD, ITL, ESP, DKK, SEK, EUR,etc. The default currency will be set by each user in each user'spreferences interface 143 (see FIG. 6B). This will allow the currencycode field of the symbology to be omitted much of the time. However,foreign exchange trades (FXS) preferably include the currency code.Further, the currency code represents the currency which will be indeedin equal amounts for both the spot and forward coupons.

The credit preference feature of the present invention provides for thebilateral credit status between two entities to be captured, structuredand used anonymously for the trading of a wide range of financialcontracts. In prior art systems, credit information was primarily usedto deal with settlement risk in trading spot foreign currency. In suchprior art systems, the credit line or limit is usually expressed inamounts of currency which equates with the quantity or volume of aparticular trade. As trades are executed between counterparties, theamount of the limit is decreased in a corresponding amount to the tradeexecuted until there is little or no remaining credit, and then furthertrading is prevented until the trades settle or the credit limit amountis re-set. In foreign currency trading, the settlement process iscompleted in only a few days, after which both counterparties haveexchanged the currencies, and then there is no further credit riskbetween them (i.e., the trades have settled). This is vastly differentfrom derivatives trading, where the amount at risk is normally not equalto the principal or quantity of the transaction and the obligationsunder the contract may continue into the future. Derivative trades canbe anything from spot (the normal settlement of a foreign exchangecontract) to thirty years into the future. Therefore, the resultingcredit exposure (i.e., the value of a contract at a future time) is overthe life of a contract of an unknown amount.

The credit preference feature of the present invention is configured tohandle the significant long-term credit problems inherent inover-the-counter (OTC) derivatives transactions. These long-term creditproblems are further compounded by the fact that there is no standardmethod for banks to internally monitor and manage their credit risks.Most banks have developed their own, often proprietary, methods ofmonitoring and measuring the credit risk embedded in large portfolios ofderivatives. Furthermore, banks also have different methods for dealingwith the many different financial instruments that exist in every market

The credit preference feature of the present invention adds theseproblems and provides a viable solution. The credit preference featureof the present invention achieves this, at least in part by introducinga measurement unit of credit risk referred to as risk equivalent (RQ)which allows for different instruments to be compared on a like basisusing a standard measuring methodology, which together with the conceptsof contract maturity, credit groups, classes, credit preferences, legalentities and business units allow the system 10 to offer a solution tothe credit risks embedded in bilateral, term derivatives contracts. Thepresent invention also provides for the designation of credit groups. Acredit group is a grouping of classes of financial contracts that abusiness unit wishes to be treated in a like manner for credit purposes.In a preferred embodiment, three default credit groups will beavailable: (1) Derivatives—SWP, IBS, CAP, SOP, FRA, CBS; (2)Switches—SWT, SWF; and (3) foreign exchange. Any other combination maybe set up by the business unit, as desired.

Credit preferences are the methods or rules selected by a business unitwithin a is credit group for the system 10 to use to screen prices (bidsor offers) and trades against all other legal entities. In a preferredembodiment, the following three credit preferences are provided, thoughit will be appreciated by those of ordinary skill in the art that othercredit preferences may be utilized in accordance with the presentinvention:

-   -   Method 1: Binary (simple yes/no)—This is used where        mark-to-market (MTM) agreements exist between the        counterparties. MTM are bilateral, collateral agreements which        are common and reduce the credit risk between two parties to        almost zero by the posting of collateral against the value of a        portfolio of derivatives covered by a single ISDA (International        Swap and Derivatives Association) master agreement.    -   Method 2: Line Binary—takes into account the maturity (quoted in        months from trade date) of the financial contract.    -   Method 3: Complex—This is based on the RQ of each contract        within maturity bands. The system calculates a RQ for each        instrument in the form of a constant currency unit expressed as        a percentage. Each business unit has the choice of using the        system generated RQ unit or to provide their own.

In the binary method, a business unit makes a yes or no determination asto whether or not they will deal with a particular counterparty for aparticular credit group. In this credit preference, the decision isbinary; there is no maximum maturity limit (i.e., time limit) orquantity limit (i.e., amount) in the binary method. The binary method isthe broadest of the three credit preference definitions provided forherein. Typically, the binary method will be used to refuse credit,where MTM agreements exist or where the credit exposure is small (forexample, in switches).

In the line binary method, it is assumed that the business unit willdeal with a particular counterparty for a particular credit group.However, the line binary method adds a further restriction of a maximummaturity of any contract tradable. The added restriction is preferablyexpressed by the number of months into the future. The binary method isparticularly well suited for used by institutions that are not yet usingRQ units, but which desire a method to limit potential exposure tolonger dated contacts (for example, a temporary step).

The complex method allows each business unit to exactly stipulate theamount of new risk that they are prepared to enter into with any otherlegal entity for each credit group by maturity band. The complex methodenables a business unit to specify not only a particular maturity, butalso a particular quantity or amount based on a measure of RQ. Further,the complex method enables the business unit to specify this for morethan one period in time. For example, a business unit can specify thatfor Bank A, they will do up to $100 million out for 5 years, and thenonly $50 million from thereafter out to 10 years, and nothingthereafter.

Risk is generally defined herein as the degree of uncertainty of futurenet returns. Credit risk is further defined as an estimate of thepotential loss due to the inability of a counterparty to meet itsobligations. Thus, while the risk in a particular transaction dependsnot only on the changes in market rates and credit standing of thecounterparty to the transaction, the credit risk or exposure is thenominal amount that can be lost when a defaults on its obligation. Aspreviously mentioned, the credit risk in a derivatives transaction isrelatively complex. For instance, though derivative contracts come inmany forms, the majority have a fair credit value of zero at the timethe transaction is initially entered into. That is, no funds aretransferred between the parties at the time the contract is created.Rather, the contract places an obligation on both over the term of thecontract. Further, both parties are entering into a contract whichrequires them to accept a certain amount of risk. The RQ is a unit ofcredit risk which allows all contracts to be compared on a like basis,at virtually any point in time. The RQ is the credit exposure in termsof a percentage of the principal.

The calculation of RQ is based on the potential exposure averaged over aseries of time points, weighed by an appropriate discount factor. Thereare several methods of calculating the exposure of a transaction, thoughthe RQ is calculated herein using an option pricing approach, asdescribed below.

For a certain party, a transaction can be viewed as two opposite cashflows. Inflows are assets, denoted by A(t), and outflows areliabilities, denoted by L(t). Therefore, the current exposure may beexpressed as follows:E(t)=max (A(t)−L(t),0)

This formula is similar to the intrinsic value of a call option. The keydifference is that both A(t) and L(t) can be random. Thus, following thesame structure by the Black-Scholes, then:E  E(t) = Aϕ  (d₁) − L(t)ϕ  (d₂), where${d_{2} = {d_{1} - {\sigma\quad(t)\sqrt{\tau\quad(t)}}}}\quad$$d_{1} = \frac{{\log\left( \frac{A(t)}{L(t)} \right)} + {\frac{\sigma^{2}(t)}{2}\tau\quad(t)}}{{\sigma\quad(t)\sqrt{\tau\quad(t)}}\quad}$where σ(t) is the daily volatility (in percent) that takes into accountthat both A(t) and L(t) are random. The maximum exposure estimate isbased on the following equation:${{ME}(t)} = {{A(t)} - {L(t)} + {{A(t)}\left\lbrack {{\mathbb{e}}^{1.65\sigma\quad{(t)}\sqrt{\tau\quad{(t)}}\frac{\sigma^{2}{(t)}}{2}{\tau{(t)}}} - 1} \right\rbrack}}$

Thus, the RQ can be expressed as:${RQ} = {\frac{{AEE}(t)}{Principal}*100\%\quad{where}}$${{AEE}(t)} = {{\sum\limits_{t = 0}^{N}\quad{\omega\quad(t){E\left\lbrack {E(t)} \right\rbrack}\quad{where}\quad\omega\quad(t)}} = \frac{\delta\quad(t)}{\sum\limits_{0}^{N}\quad{\delta\quad(t)}}}$where δ(t) is the discount factor at future time t.

For FRA's, the following equations apply:A(t)=*discountFactor(t, s)*x+(1+floatingCoupon)*discountfactor(t, e)wherefloatCoupon=1*(e−s)/floatBasis*floatRate, andL(t)=1*discountFactor(t, s)*x+(1+fixCoupon)*discountfactor(t, e)wherefixCoupon=1*(e−s)/fixBasis*fixRate,

-   for t<s, x=1, and-   for t>=s, x=0.

Then we can apply the above formula for RQ to get the expected exposureat time t. By choosing the time partition t0, t1, t2 . . . , tn andcalculate the expected exposure at each point and use the formulae ofRQ, the RQ of this FRA can be calculated.

For SWAP's, the following equations apply for any time(t_(i)<t<=t_(i+1)): $\begin{matrix}{{A(t)} = {{\sum\limits_{j = i}^{n}\quad{{{floatingCoupon}\left( t_{j} \right)}*{discountFactor}\left( {t,t_{j}} \right)}} +}} \\{{{1*{discountFactor}\left( {t,t_{n}} \right)},{and}}\quad}\end{matrix}$ $\begin{matrix}{{L(t)} = {{\sum\limits_{j = i}^{n}\quad{{{fixedCoupon}\left( t_{j} \right)}*{discountFactor}\left( {t,t_{j}} \right)}} +}} \\{{1*{{discountFactor}\left( {t,t_{n}} \right)}},}\end{matrix}$where floatingCoupon(t_(j)) is the floating coupon at time t_(j), andfixedCoupon(t_(j)) is the fixed coupon at time t_(j). Then apply theformulae of option pricing approach, we can get the expected exposure attime t, by averaging the expected exposure with the discount factor, theRQ can be calculated.

At this point it may be worthwhile to distinguish the credit preferencefeature of the present invention from other known systems. The creditpreference of the present invention does much more than merely monitorthe amount transacted between two counterparties and then reduce theamount available accordingly. The prescreening performed by the creditpreference of the present invention is used to prescreen possible tradesbased on each counterparty's credit preferences. The present inventiondoes not control a user trading and does not directly limit the user'sfuture trading based upon the user's past trading. In fact, it is quitepossible that a new transaction may reduce the exposure between twolegal entities. A user's business unit is responsible for monitoring thecredit exposure of the business unit with respect to all legal entitycounterparties, and for adjusting the credit preferences in the system10 accordingly. This is a significant difference from prior art systemsthat automatically decrease the amount available to trade withrespective counterparty as transactions are executed. The creditpreference of the present invention represents an improvement over suchsystems because the balance of risk is based on the total portfoliobetween the two parties and not merely the new transactions, and thebalance of risk will be affected by market movements, deals executedoutside the system 10, and internal changes to the ratings.

Credit decisions for OTC derivatives are considered different from manyother financial instruments. In general, a credit decision for an OTCderivative is a function of, among other things, the composition of theuser's current derivatives portfolio, the current level or prices of thefinancial markets, new financial transactions, and the rating or levelof credit worthiness of each legal entity. Therefore, more sophisticatedmeans such as the credit preference prescreening of the presentinvention is needed to adequately measure and manage credit exposure inthe OTC derivatives market, as well as with other financial markets.

The present invention enables the user to set desired credit preferencesfor each legal entity via the credit preference interface 170, asillustrated in FIG. 7. A user can navigate to the credit preferenceinterface 170 by selecting the credit settings button in the tool bar132 of the command center interface 130 (FIG. 5). The credit preferenceinterface 170 enables the users to view and/or update credit preferencesettings in a clear, simple, comprehensive and intuitive manner. Thecredit preference interface 170 may be used to view or input/amend thebusiness unit's credit preferences. The credit preference settings arepreferably only viewable by users within a business unit, and amendableby users with the correct permissions, both of which may be designatedby the financial institution or the business unit. A business unit mayalso select to inherit credit preferences from another business unitwithin its family hierarchy.

In a preferred embodiment, the credit preference interface 170 includesa display window 172 that displays various information including analphabetical listing of all other legal entities (i.e., financialinstitutions) that have access to the system 10. Each legal entity canbe expanded via an expand button 174 to list the settings for all thecredit groups that the user has selected to trade within that legalentity, as shown for the Merrill Lynch entry. For those legal entitiesthat are not expanded in window 172, the settings displayed are for adesignated default credit group 176. The user can modify the displayedcredit groups by selecting the Modify Credit Groups button 178 whichlaunches the modify credit group interface 180, as illustrated in FIGS.8A and 8B. The modify credit group interface 180 enables the user tocustomize his/her class groups by providing functionality to performsuch operations as adding and removing instruments from a class group,as illustrated in FIG. 8A. For instance, for a selected credit group182, a list 183 of instruments in that credit group is provided.Unassigned instruments can be added and member instruments can beremoved. Further, credit groups 182 can be added and deleted via buttons182, 185, respectively. In FIG. 8B, each credit group 182 may have bandsof maturity 186 defined (i.e., added or deleted). Each class grouppreferably includes instruments that are closely related because theinstruments in each class group are given the same credit preferencesetting, and therefore, the credit preference setting process may besimplified.

Referring back to the credit preference interface 170 of FIG. 7, apreference setting column 187 provides the credit preference settingdesignated for the corresponding legal entity 183. The credit preferencesettings for any legal entity can be modified or selected via adrop-down dialog box 188. From the dropdown dialog box 188, the user canselect from a list of predefined credit preference option. For a newline binary, the user is prompted with a new line binary interface 189in which the user can enter a maturity. For complex, the user isprompted with a complex preference interface 190 (FIG. 9B) in which theuser can enter the exposure for each maturity band.

With reference back to FIG. 7, the complex credit preference settingsand the RQ may be provided for each instruments designated as such byselecting an appropriate legal entity and then selecting the ComplexBands button 194.

If the, user does not set a particular preference for a particularcounterparty, then the credit preference will be assumed to be a simplebinary (no). If after initially setting these preferences a newcounterparty is added to the system, the preference for the newcounterparty will be binary (no) for all users until they havespecifically set a credit preference for the new counterparty.

The level column 196 displays the business unit's designation for eachlegal entity as to the levels A, B or C. The level set for each legalentity may be provided by the system 10 via various interfaces such as amarket detail interface (described below with reference to FIG. 15) toprovide the trader with information with regard to the creditworthinessof the counterparty. Thus, a business unit may assign one of the levelsA, B or C against each legal entity. This is essentially a quickreference of credit worthiness for the user.

The columns 198 labeled S&P and Moody are industry credit ratings thatare integrated into the credit preference interface 170. The industrycredit ratings may be downloaded on a subscription basis via externalcommunication interface link interface 62 (FIG. 2). Lastly, the lastmodified column and the modified by column identify the time and personthat last modified that credit setting. As mentioned before, access tomodify any of the credit preferences should be limited to a financeofficer or credit officer of the legal entity.

It should be noted that the credit preference settings may betransferred via electron file transfer or inputted manually on-line atanytime, and as often as the user desires. Further, updates may be madefor all credit groups and legal entities, or alternatively, updates canbe just for individual settings.

In addition, the credit preferences interface 172 includes a BU Infobutton 202 which, if selected, brings up a business unit data interface204, as illustrated in FIG. 10. The business unit data interface 204enables the users to view helpful internal information about other legalentities. The respective business units define what information isincluded in the business unit data interface. For example, the businessunit data interface 204 of FIG. 10 provides the internal facilitynumber, telephone number, internal reference number, internal net MTM,internal gross MTM, and internal number deals of a business unit.Alternatively, a business unit may include a contact name or otherbusiness unit specific data.

Accordingly, the credit preference logic of the present invention can beillustrated graphically as shown in FIG. 11. For purposes of FIG. 11, itis assumed that business unit (i) belongs to legal entity (i) where i=1,2, and 3, and business unit (j) belongs to LE(j) where j=1, 2, and 3.Accordingly, FIG. 11 illustrates a portion of the credit data which isstored by the system 10 in order to implement the credit preferencefeature of the present invention. Each column represents the creditpreference (i.e., binary, line binary, or complex) which is storedanonymously for each business unit against each legal entity across allcredit groups. The vertical and horizontal bars 210 represent theinformation which business unit (3) requires to determine the creditpreference status of an order. The information in columns 210 providesthe credit preferences which business unit (3) has set again all otherlegal entity, and row 211 provides the credit preferences which allother business units have set against business unit (3)'s legal entity,that is, legal entity (3). The depth 216 of the graph is divided intothe different credit groups such as switch, derivative, and foreignexchange.

The triangles 212, 214 mark the cells that include the information whichis used by business unit (3) to encode a specific order from businessunit (5) of legal entity (5) with credit status information forpresentation to the user via one or more of the interfaces describedherein. In a preferred embodiment, the credit preference feature of thepresent invention color codes the credit preference status of each orderfrom the perspective of the viewing business unit. Alternatively,another method of encoding the credit preference status of an order mayinclude adding a character notation such as an asterisk or star to anorder, as may be desired if the user is color blind.

Each order is color coded according to the credit preferences marked bythe triangle 212, which corresponds to what the order placer's businessunit has set against business unit (3)'s legal entity, and the triangle214, which corresponds to what business unit (3) has set against theorder placer's legal entity. The order is evaluated according to thecredit preference defined in the cells marked by the triangles 212, 214,and the results can be displayed to the user via the color coding schemeset forth below where true means that the order passes the creditpreference of the setting party and false means that the order does notpass the credit preference of the setting party: Triangle 212 Triangle214 Color False False RED False True YELLOW True False RED True TrueGREEN

Thus, each order is color coded to communicate to the user thetradability of the bids and offers in the market based on thepreferences of both users. The color coding methodology described hereinis used in both the market entry interface (described below withreference to FIG. 12) and the market detail interface (described belowwith reference to FIG. 15). For the present embodiment of the invention,the following meanings are associated with the cited colors:

-   -   GREEN: The price passes the credit preferences of both parties,        and the counterparties are free to trade. Any trade that is        shown in green can be freely traded by the trader, and credit        approval is assumed to be in place.    -   YELLOW: The price posted is free to trade by the viewer, but the        poster of the price has excluded the viewer from his/her credit        preferences. If the price is colored yellow, a deal may be        allowed provided that the party who placed the passive order        allows mutual puts, and the credit over-ride process which is        described below is completed. The viewer can attempt to trade by        sending a message (thereby initiating the credit over-ride        process) to the poster of the price which discloses the name        and/or identity of the viewer, along with a mutual put maturity        entered by the viewer. The poster then has the opportunity to        accept, accept subject to credit (in either case, the poster may        also reduce the maturity of the mutual put), or decline. The        poster's name will not be released to the viewer until a trade        is executed. The posted price will remain available to all other        traders on the system 10 until a trade is completed. If the        order trades to another viewer, then the credit over-ride        process will be terminated.    -   RED: The price posted is excluded by the viewer's own        preferences even though the poster is (may be) clear to trade.        In this situation, the viewer is not free to trade since it is        the viewer's own credit preference that the viewer set which is        preventing the trade.    -   BLUE: The price is the viewer's own order.    -   WHITE: Only used in the market entry interface 250 (FIG. 12) to        display prices where there are multiple orders at the best price        with differing codes. Thus, the viewer is notified to view the        market details interface for more information.

In the over-ride process mentioned above, if the viewer sees a pricecoded yellow that he/she wishes to trade, then the viewer may activatethe over-ride process. The over-ride process begins by prompting theposting party with a request for an order quantity. The message sent tothe poster essentially states that the viewer, which is identified byname in the message, wishes to trade a slated quantity and that thereceiving party has a stated period of time to respond, for instance, 15seconds. The viewer win then see a copy of his/her message and a clockwhich displays the countdown of the stated time to the poster. Theposter receives the message and can decline or accept. If the posterdeclines, then the viewer is informed accordingly. If the posteraccepts, then the poster has the option to add a mutual put maturity andrequest a small price adjustment, which will be stated in a specifiednumber of months. The viewer cannot back out of the trade while theclock is running (unless a price adjustment is requested). Further, atno time is the poster in a trade until all steps are complete.

The process by which passive orders are color coded is described at thispoint. Regardless of the credit preference type, the trader workstation20 generates a maximum maturity value that determines how an order winbe color coded. The maximum maturity value is in the form of an integern digits in length, with the right-most two digits representing days,and the left (n-2) digits representing months. Therefore 12000represents 10 years, 3600 represents 36 months, and 114 represents 1month, 14 days. The method by which credit preferences are converted toa maximum maturity value is represented by Table 2 below. TABLE 2Preference Type Maximum Maturity Binary No −2³¹, the smallest possibleinteger value Binary Yes 2³² − 1, the largest possible integer valueLine Binary The maximum maturity associated with the preference (e.g.,Line Binary/12 has a max maturity of 1200) Complex The maturity of thehighest band with an exposure amount greater than zero. (e.g., Thefollowing complex preference would have a max maturity of 6000) Mat BandExposure 100 10,000,000 600 5,000,000 1200 3,000,000 3600 1,000,000 6000500,000 12000 0

Every instrument in the system 10 possesses a maximum maturity value. Todetermine whether a particular order can be traded, the maximum maturityfor the order's instrument is compared to the maximum maturity of thecredit preference. If the instrument's maximum maturity is greater thanthat of the credit preference, then the order may be traded, otherwiseit cannot be traded.

Note that the maximum maturity assigned to a Binary-No preference willbe lower than that of any instrument, effectively making all instrumentsuntradeable. Likewise, the maximum maturity of a Binary-Yes preferencewill exceed that of any instrument.

In order to determine the appropriate color code, the trade workstation20 maintains two lists for each instrument class. One list includes thecredit preferences that the viewer has set against all other legalentities for that instrument class. This list may be referred to asMY_PREFS. The other list includes the credit preferences that all otherbusiness units have set against the viewing legal entity for thatinstrument class. This list may be referred to as OTHER_PREFS. Each ofthese lists contains the following data:

Business Unit ID (Only used for OTHER_PREFS)

Legal Entity ID (Only used for MY_PREFS)

Maximum Maturity

Credit Level (Only used for MY_PREFS)

Consider, for instance, an order for an arbitrary FRA instrument placedby business unit (1) of legal entity (1). When the order is broadcastout to a plurality of traders 20 (i.e., viewers), the order will includethe following information: Business unit of trader placing order:business unit (1) Legal entity of trader placing order: legal entity (1)Maximum Maturity of order: 3600 (for example)

In order to color code the order, the viewing party must extract andutilize his/her credit preference against legal entity (1) from the FRAMY_PREFS list, and business unit (1)'s preference against him/her fromthe FRA OTHER_PREFS list. From the credit preferences extracted, thecolor of the order as it will appear to the trader is as defined inTable 3 below. TABLE 3 MY_PREFS OTHER_PREFS PREFERENCE PREFERENCE maxmaturity >= 3600 max maturity >= 3600 Color of Order false false redfalse true red true false yellow true true green

Also, note that the MY_PREFS list may contain a credit level (e.g.,which may be associated with the order and presented to the viewer.

Accordingly, when the user logs into the system 10, the user populatesthe MY_PREFS and OTHER_PREFS lists for the instrument classes for use bythe credit preference module 76 (FIG. 3). This is achieved by thecentral processing center 12 sending to A trader workstations 20 that islogging-on one or more messages including the MY_PREFS and OTHER_PREFSlists from the database 66 on the hard disk 64 (FIG. 2).

When a user changes a credit preference assigned to a legal entity for aparticular credit group in a way which causes the maximum maturity ofthe credit preference to change, the user will receive updates toMY_PREFS from the central processing center 12. Also, any user withinthe affected legal entity who is logged on to system 10 will receive anupdate to OTHER_PREFS. Changes to complex preferences do not requiresuch an update unless the zero band is changed (thus modifying themaximum maturity). If the user changes the credit level associated witha legal entity, the user will receive an update to MY_PREFS.

However, these two updates should not be performed at the time thechanges are made, as doing so could allow a user to determine the legalentity that placed an order by methodically changing his/her creditpreferences against each legal entity from a green state to a red stateuntil the order changed color. Instead, the required updates will becollected and sent out on an periodic basis. Also, to discouragediscovery of a counterpart's identity by assigning a unique credit levelto a single legal entity, each credit level should be assigned to eitherno legal entity, or to more than one legal entity.

From the command center interface 130, a user may enter the market entryinterface 250, as illustrated in FIG. 12. At the market entry interface250, the user can simultaneously monitor numerous markets and placeorders, including bids and offers. The market entry interface 250 alsoallows the trader to select any instrument(s) to be displayed, andmultiple market entry interfaces 250 with various trading functions(e.g., common FRA on one interface, SWAP on another interface, andSwitches on yet another interface) may be opened on the trader's desktopsimultaneously. The market entry interface 250 is designed to presentthe sum of the best bid and ask, and the act of trading by any twoparties by a flashing volume indicator in the top right-hand corner.Thus, the market entry interface 250 enables a trader to easily monitormany different markets with relative ease and utility. It should benoted that the system 10 does not perform auto-matching of orders, butallows the user to maintain control of the trading process at all times.The system 10 does this by introducing the concepts of active andpassive orders. A passive order is an order placed in the system 10 fora particular instrument, for a particular quantity, at a specific price,for a particular time period (see order types below). An active order iswhen a user decides to trade a passive order displayed in the system 10,and is usually only required to provide the quantity. Thus, there can beactive or passive bids and offers.

The user may customize the market entry interface 250 by adding andremoving instruments (i.e., markets) displayed in the instrument displaywindow 252. The user may add new markets by entering an instrumentsymbol (according to the symbology of the present invention) intoinstrument identifier field 254. The user may also want to define groupsof instruments which can be saved as profiles and viewed together.Profiles allows the user to organize multiple markets by likeattributes. The profile being viewed is displayed in the profile displayfield 256. The profile display field 256 is a pull down menu that liststhe other profiles defined by the user. Until the user defines a firstprofile, the profile display field 256 is set to default.

Individual markets displayed in the instrument display window 252 aredivided into four columns: instrument, best bid, best ask, and info. Theinstrument column displays the instrument name (i.e., the symbol, aliasor a security identifier). The best bid column displays the best bidinformation, defined herein as the orders that are at the best price.The best bid information includes a relatively large central number thatdisplays the least two significant digits of the price, a bottom leftnumber that displays all but the least two significant digits of theprice, a bottom right number that displays any volume or quantitycurrently trading, and a top right number that displays the quantity ofcurrency units in millions. Depending on the precision desired, agreater or lesser number of digits can be displayed as the largercentral number. The precision of the displayed central numbers isdefined for each instrument, and may, for example, include 2, 3, 4, ormore digits. The best ask column is substantially identical in format tothe best bid column, but displays the best asking price rather than thebest bid price. The info column provides space for data items that theuser may select to view, as defined in an info window 258. In thepresent embodiment, three items are defined in the info window 258, andthus, the corresponding information for the instrument will be listed inthe info column.

The system 10 provides users with a symbol construction interface 270,as illustrated in FIG. 13, that can be accessed via a Lookup button 272from the market entry screen 250. The symbol construction interface 270functions to aid the user in selecting instrument for display in theinstrument display window 252. From the symbol construction interface270, the user can view available aliases in window 273, explode a symbol(i.e., view a list of underlying parameters associated with the symbol,for example, payment date) via the Explode Symbol button 274, selectsymbols to be added to a profile via the Add to Profile button 276, andconstruct new symbols or aliases via the Build Symbol button 278. Thesymbol construction interface 270 also provides error checking such thatonly valid symbols can be selected. An instrument should exist in thedatabase to be valid, and not all combinations will exist. Foradditional verification, the symbol explode function of the ExplodeSymbol button 274 enables essentially all aspects of the instrument tobe displayed in detail. Thus, the explode symbol feature provides acomplete detailed description of the instrument in Symbol window 280.

The symbol construction interface 270 screen also enables the user tosearch for groups of symbols by at least partially filling out the inputparameters 282 located above a Search Options button 284, and thenselecting the Search Options button 284. The input parameters 282include various non-commercial terms of an instrument that can benegotiated following a transaction. For instance, as shown in FIG. 13,the input parameters 282 include class of instrument, currency, startmonth, end month, over, FLOPT, and special rules. By at least partiallyfilling in these parameters, the user can search for similar instrumentswhich are displayed in window 280.

Referring back to market entry interface of FIG. 12, it is noted thatthe prices displayed in the best bid and best ask columns are encodedwith credit information using the color scheme described above. Aspreviously mentioned, colorblind users can have the color coding schemereplaced by a symbol scheme in which different symbols are positionednext to the respective prices to indicate the credit status of theorder. The symbol scheme may be chosen by the user under the Environmenttab of the preference interface 148 (see FIG. 6B).

It should also be noted that the inventors of the present invention arenot presently aware of any electronic trading system that offerscolorbased credit preference prescreening such as that disclosed herein.The present invention provides colorbased credit preference prescreeningbecause, unlike the prior art systems which only show the best dealableprice or the best minimum quantity, the present invention shows allprices (bids and offers), irrespective of their credit preferences.Thus, the user can be provided with as wide of a view of the markets asthe user desires. Advantageously, the color coding enables the user tovisually determine virtually instantaneously what bids and offers aretradable based on the credit preferences of the trader and thecounterparty.

Once the user has entered the desired financial instruments in themarket entry interface 250 via the symbology, the best bid and offersfor each of the desired instruments will be displayed in the instrumentdisplay window 252. The best bid and best offer prices display in window252 are different from many prior art systems because they are theabsolute best bid and best offer at the stated quantity. Because of theunique color coding scheme, the user is able to quickly tell whether ornot the bid or offer is tradable by him/her. If the user so desires, theuser can select a financial instrument with the pointing device 86 (FIG.3), such as a mouse, so as to highlight the row in the instrumentdisplay window 252 for that instrument. Once the financial instrument ishighlighted, the user may perform one of several functions provided forby the function bar 290, each of which is described below:

-   -   EXPL Function: This explodes the instrument symbol into a full        description of the contract, and mirrors the confirmation    -   HIT, LIFT, ORD Functions: These three buttons allow a user to        select an instrument and then place a new order, or execute an        active order, by hitting or lifting the desired respective bid        or offer. The HIT, LIFT, ORD functions can also be carried out        by double clicking the mouse in the screen itself.    -   RFP Function: request-for-price messages are an important tool        to allow the market to communicate. If a trader wishes to see a        market, a broker will be contacted via the telephone, and the        broker will in turn phone other traders to drum up interest.        Using the system 10 of the present invention, the same result        can be achieved instantaneously by sending an RFP to all        registered users. This message may be displayed in the command        center interface 130 of other users, informing them of a RFP in        the named instrument. In addition, because derivatives traders        are often trading more than one financial instrument, and        sometimes in more than one currency, derivatives traders will        often have multiple passive orders. The present invention        provides at least three order management functions to facilitate        the canceling or temporarily suspending the order. This may be        an important functionality when the market is moving quickly, or        if the position of a trader suddenly changes.    -   XLST Function: This function cancels the last passive order        placed by the trader. Therefore, if a user submits an order and        immediately changes his or her mind, the order can be canceled        without the need to select the order individually.    -   XALL Function: This function allows the user to cancel all his        or her outstanding passive orders in one key stroke.    -   REF Function: This function allows the user to suspend or place        all orders under reference. This is an alternative to canceling        orders one by one. For instance, if a user is expecting news        that may affect only a few outstanding orders, it may be safer        to place all orders under reference, and individually re-release        the orders the trader expects not to be affected back into the        market.    -   DEL Function: This function allows the user to delete a market        from the profile.

In specific regard to the ORD button in the function bar 290, a user cansubmit a passive order by selecting the ORD button. If the ORD button isselected, a passive order interface 294 is provided to the user, asillustrated in FIG. 14A. From the passive order interface 294, the usercan place a passive order such as a bid (i.e., buy) or an ask (i.e.,sell). The user enters a price, quantity, and selects how long the orderwill be good. The price will default to current market level so the usermay only need to enter the last two digits of the price. For quantity,the system 10 recognizes m, mm and b for thousands, millions andbillions, respectively. The system 10 allows the following order typesto be entered under the good until option:

-   -   good until logout (default)—Requires the user to be logged on        and to monitor the orders status.    -   good until time—The user will be prompted to enter a time (in        his or her own time zone). This order does not require the user        to be logged on and will be canceled automatically by the system        10 at the appropriate time.    -   good until canceled—This order again does not require the user        to be logged on, but must be canceled by the user.        The system checks any new orders for reasonableness (or        “framing”) as they are placed. For example, a bid cannot be        higher than the existing offer without the user double checking.        The tab key, enter key, or the mouse can be used to navigate        though the passive order interface 294. Upon selecting the OK        button, the order is submitted into the system 10 and the user        is returned to the market entry interface 250.

In specific regard to the HIT and LIFT buttons in the function bar 290,a user can initiate active orders by hitting a bid (i.e., sell) orlifting an ask (i.e., buy). By selecting either the HIT or LIFT button,a hit order window or a lift order window is presented to the user. Forexample, a hit order window 296 is illustrated in FIG. 14B. The hitorder window 296 is substantially identical to the lift order window. Asshown, the hit order window 296 identifies the instrument and orderprice. Further, the user is presented with a transaction quantity whichis initially set for the full amount being offered by the counterparty.The user is allowed to reduce the quantity figure. The user is notallowed at this point to increase the quantity figure because thecounterparty has already indicated the quantity they are desiring tosell. Upon selecting the OK button, the order is executed by the systemin the manner described below, and the user is returned to the marketentry interface 250.

In addition to the above functions provided by the function bar 290, ifthe user wants to see the full depth and breath of a particular marketin a particular financial instrument, the user can select (e.g.,highlight) an instrument in the instrument display window 252 and thenclick on the MDS button 292. This will launch the market detailinterface 302, as illustrated in FIG. 15 for the highlighted instrument.

The market detail interface 302 enables a trader to view essentially allthe orders in the market for a particular instrument, both bids andoffers. The bid orders are listed in a bid window 304 where the creditlevels (eg., A, B or C), bid quantities and bid prices are provided. Theoffer orders (i.e., ask orders) are listed in ask window 306 where theask prices, ask quantities and credit levels are provided. As with themarket entry interface 250, the orders are colorcoded with theappropriate credit preferences. This is a significant departure frommany prior art systems which only show the best dealable price orblended prices.

In the market detail interface 302, orders are individually listed inthe bid window 304 or the ask window 306 in order of price, and thenaccording to the time the orders were entered into the market. The userhas the ability to select any order on the screen and hit or lift theorder, assuming of course that the respective credit preferences willpermit a trade. The user is provided with a function bar 308, which issubstantially the same as function bar 290. Particularly, the buttons ofthe function bar 308 are substantially identically to those on thefunction bar 290 except that they only apply to a particular instrumentwhile the buttons of the function bar 290 apply against multipleinstruments. Further, a fair price indicator, spot/setting indicator(i.e., the LIBOR for that day), and last traded price indicator areprovided along the bottom of the bid window 304 and ask window 306. Thelast trade pricing may be replaced by volume, duration, RQ, last closeprice, etc.

An advantage of the market detail interface 302 is that the user is notrestricted to trading only the best price or first order. At no point inthe process will any orders be automatically matched again each other bythe system 10. The user is in complete control of the order flowprocess.

Thus, the user can execute both passive and active orders from eitherthe market detail interface 302 or the market entry interface 250. Ateither interface 250, 302, if the user wants to execute a trade, thenthe user only need to highlight the desired bid or offer and select thecorresponding function button from the respective function bar 290, 308to initiate the transaction. Although the semantics of placing,changing, and canceling orders can be relatively complex, the user isshielded from this wherever possible by the system 10.

Each order entered into the system 10 is placed into a queue based onprice and time received. A change to the order may or may not affect theorders place in the queue. Any change of price will move the order up ordown in the queue depending on the price level. Any decrease in thevolume of the order will not affect the order's place in the queue. Anyincrease in volume will result in the previous amount holding its placeand a new order placed for the balance.

Effective electronic trading should be intuitive, fast and reliable. Inorder to facilitate this, the present invention is designed to maximizea user's efficiency. The system 10 enables the user to place passiveorders from either the market entry interface 250 or market detailsinterface 302 using the input device 86. For instance, the user maydouble click on the instrument name or may select the ORD button of thefunction bar 290, 308 in order to launch the passive order interface294.

Once an order has been submitted, it will immediately be updated to themarket entry interfaces 250 and market details interfaces 302 of otherusers, providing the user has a current subscription (i.e., fieldsetting) to the instrument.

For monitoring the status of a user's outstanding (or open) passiveorders, and for making quick adjustments to those orders, the presentinvention has a facility known as an outstanding order blotter 320, asillustrated in FIG. 16. The outstanding order blotter 320 summarizes alloutstanding passive orders and provides the user with the ability toconfirm the terms of the trade, the symbol, and the type of order. Inaddition, the outstanding order blotter 320 enables the user to quicklychange the price, quantity, or good until status via dropdown menus thatappear when an order is selected. From the outstanding order blotter320, the user may also place new orders and/or cancel a particular orderin the market. Thus, the outstanding order blotter 320 gives the userthe ability to manage his/her current passive orders in the market froma single interface. As with the market entry interface 250 and marketdetail interface 302, the user is provided with cancel all, cancel last,and refer-all functions via the outstanding order blotter 320. This is asignificant advancement over many prior art systems in that not onlydoes the system 10 offer a facility to track all current passive orders,but the system 10 also enables the user to modify, add or delete passiveorders from the outstanding order blotter 320 without returning to themarket entry interface 250 or market detail interface 302.

For executed or canceled orders, the user is provided a client monitor330, as illustrated in FIG. 17. From the client monitor 330, the userhas access to completed or canceled trades. Thus, the client monitor 330enables the user to quickly see what orders have been executed orcanceled, and to look back over time to see previous days trades.Preferably, historical transactions will be available for one month viathe client monitor 330.

The outstanding order blotter 320 and client monitor 330 enable a userto manage his/her diverse trading activities. From either blotter, theuser can monitor the status of orders and executed or canceled trades.Both of the outstanding order blotter 320 and client monitor 330 can beaccessed from the command center interface 130. Further, the blotter 320and monitor 330 are updated automatically if the user submits an ordervia one of the other interfaces.

The system 10 permits active orders (i.e., those where a trader hits orlifts a passive order) to be placed from either the market entryinterface 250 or market detail interface 302 via the HIT and LIFTbuttons on the function bars 290, 308. The system 10 differs from manyprior art systems in that two passive orders will not be executedagainst each other automatically. An active order from an active user isrequired for execution. Furthermore, there will be one active and onepassive user for each trade. This means choice (where bid equals order)or even backwardation (where bid is higher than order) markets arepossible. Accordingly, for a transaction to be completed in the system10, an action must be performed against a passive order.

Once an active order has been placed in the system 10, the executionprocess is completed. An execution notification message 340, asillustrated in FIG. 18, is sent to both counterparties, describing thetransaction and disclosing the names of the counterparties. Note, thisis the first point in the transaction that the counterparties areidentified to one another. The system 10 ensures that both users receivethe message before the trade is finally completed. This does not requireany form of action from either user, the market interface module 74(FIG. 3) of each trader responds for the respective user. Thisvalidation ensures that, in the likely event that a connection is lostduring this process, a user does not have a position of which he or sheis unaware.

The system 10 is designed to ensure that a user cannot execute a passiveorder which has been canceled or is no longer available. This is done bychecking to verify that the connection between all tradingcounterparties is live at all times. In the event that the connection islost or broken, all orders from a user which-loses connection to thesystem 10 are automatically suspended. Following the execution, theclient monitor 330 is updated with the transaction.

The execution notification message 340 (FIG. 18) provides the users theopportunity to increase the quantity of a trade once an initial tradehas been executed. One of the users can insert a quantity in thewill-do-more field 342 which represents an additional quantity to theoriginal amount. This feature is designed to enable a user who has alarge quantity to trade to place a passive order for just a smallerportion initially. Users often want the ability to increase the quantityof an order when they have a large quantity to transact. This is becauselarge orders in the market often tend to adversely move the price of themarket as market participants back off such large size. The ability forthe passive trader to conduct an anonymous dialogue via the system 10for increasing the size of a transaction after an initial transactionfor a smaller size has been executed is an additional difference betweenthe system 10 and many prior art systems. In operation, once an amounthas been entered into the will-do-more field 342 and the Submit button344 selected, the counterparty is provided with the request for more.The counterparty is given a discrete period of time to respond to therequest to do more, after which the request lapses. If the counterpartywants to trade more, then the counterparty can accept the amountrequested, reject the amount by selecting the Reject button 346, or thecounterparty can request a different amount that is then present back tothe user who then has a discrete period of time to respond. Thecounterparties can exchange offers to increase the quantity as manytimes as they desire until an addition amount is agreed upon or adecision is made not to do more.

This function should preferably be made available only if the activeorder clears the full market size at the current best price. In thatcase, either party may ask to do more. The will-do-more feature enablesthe counterparties to increase the size (amount of the trade), but notthe price. The price is preferably not affected. This process can goback and forth for some time and can continue as long as thewill-do-quantity is fully accepted (i.e. can occur more than once). Oncecompleted by both parties, the system will combine all will-do-morequantities and generate only one transaction ticket for the totalincreased amount at the initial price.

Following the execution of a trade, the system 10 enables the parties tonegotiate the non-commercial terms of the transaction. This process isreferred to as term negotiation, and is effectuated through thenegotiation window 350, as illustrated in FIG. 19. The term negotiationprocess is a process where by both parties to a trade have the abilityto negotiate non-commercial terms of a transaction. In addition to thecommercial terms, such as price, quantity, etc., derivative transactionsalso have non-commercial terms which do not affect the price of thetrade. While there are defaults, the parties may want to negotiate theseterms. Once a trade has been executed, the system 10 will present theparties with the option to negotiate via interface 350. The system doesnot force a party to complete this process immediately, however, as theparty may have other more important tasks to complete elsewhere. Thenegotiation should, however, be completed within a reasonable time. Theactive party (i.e., the trader that hit or lifted the order) will bepresented with the terms 352 to be negotiated, current values 354 whichare editable (such as by a text field), and default values 356 which arepredefined in the system. The trader may accept the system defaults byselecting button 358, or enter his/her own desired values and select thesubmit button 360. These values are sent to the passive trader (i.e.,the trader that placed the order in the system originally) who may alsoaccept or enter his/her desired values. If an agreement cannot bereached, then the defaults will be used. The status of thesenegotiations will be displayed in the client monitor 330 of FIG. 17.

Once a trade has been executed and the non-commercial terms have beennegotiated, a trade confirmation is sent automatically to the settlementcontact of both business units preferably via fax. The system 10 canalso send the confirmation via file transfers, e-mail, or any othersuitable means of communication. Preferably, the trade confirmationincludes the quantity or volume traded, identification of the financialinstrument that was traded, price, date and time the execution isrecorded, and a settlement ID that uniquely identifies the transaction.However, it is recognized that various other parameters andtransactional data can be included as appropriate for the nature, typeand subject matter of the transaction.

In addition to the interactive trading functionality described herein,the system 10 also offers traders a trading methodology for dealing withrisk management problems unique to interest rate swap dealers. Inparticular, over the last few years, a new market has emerged as aresult of interest rate swap dealers' need to better manage their risksassociated with changes in interest rates on their growing interest rateswap portfolios. With these markets becoming more competitive, bid-offerspreads are narrowing considerably. This factor, combined with the widespreads of exchange traded Eurodollar futures, has contributed to theuse of exchange traded contracts for hedging short-term risks beingexpensive and sub-optimal. As a result, the switch was created. A switchis simply the simultaneous purchase and sale of a pair of similarforward rate agreements. This instrument, and the mutually offsettingneed of a pair of derivative portfolio risk managers, provide animproved risk management tool for a large portfolio of interest rateswaps. Despite the obvious advantages and demand from risk managers, asa result of the complexity and time-consuming nature of completing atransaction, the switch market has grown relatively slow. This may bebecause risk managers are very wary of disclosing the exact nature andsize of their own portfolios. Therefore, finding the counterparty thathas the opposite need is often difficult.

Typically, a dealer prepares a fax listing the days that the dealerneeds to buy or sell, but not the amount or importance of any givendate. The dealer sends the listing to other risk managers at otherfirms, or to voice brokers. From this bit of incomplete information,transactions are eventually negotiated. While finding switches may beimportant, it is usually not urgent as compared to other more immediatetasks, such as new executions or the hedging of large outright marketrisks. As a result, the time is never quite right to focus on a positionthat may be heavily weighted on one side and matches another's position,but not perfectly. Voice brokers have tried to solve this by matchingmultiple faxes, but this does not appear to be the solution.

The present invention goes several steps beyond these efforts, andoffers matching with the credit preferences of the traders taken intoaccount. The system 10 also demonstrates fairness in any matchingprocess. When the portfolios are so large that each risk manager has aposition on each day out over the life of his or her portfolio, theresulting combinations can be huge. The rules, constraints andpriorities are preferably structured in a way to demonstrate fairness ofexecution between users to the market participants.

In a significant departure from known attempts by others, the presentinvention offers traders a solution to the complexities of switchtrading by creating an anonymous position discovery system called theswitch engine. The objective of the switch engine is to put a tool inthe hands of risk managers that allows them to perform anonymous switchtransactions fast and efficiently without losing control of the process.The switch engine achieves this by having the trader manually inputhis/her position (i.e., interest rate risk portfolio) into the switchmodule 80 (FIG. 3) via a portfolio interface 380 using variable rateindex and currency for up to 180 days or more into the future, asillustrated by FIG. 20. Once a portfolio is inputted, the user mustconfirm its accuracy by selecting the Apply button 381 before thepositions can be used in the switch mechanism 35 of the centralprocessing center 12 (FIG. 2).

In addition, the system 10 can be configured to receive the positiondata via electronic transfer or some other suitable form of datatransfer. This may include a transfer directly from the user's own riskmanagement systems. Although some trader workstation 20 may need somecustomization to receive portfolios in this matter, the system 10 shouldsupport this capability. The nature of switch positions, particularly inthe near term (defined as out to the maturity of each index), isrelatively stable, and therefore, the on-line entry of portfolios by theuser should be adequate for most traders. The inputted portfolio data isthen sent from the trader 20 workstation to the switch mechanism 35 ofthe central processing center 12.

With reference to the portfolio interface 380 of FIG. 20, an inputtedcolumn 382 represents the portfolio entered by the user, the tradedcolumn 384 is the cumulative amount traded by the user since theportfolio was entered in the inputted column 382. The net column 386 isthe real-time position of the user given the portfolio inputted and thetraded quantities in column 384. The user may restart at any time byrolling the net positions in net column 386 into the input column 382 byselecting the Roll button 388, or by clearing all the positions byselecting the Clear button 389.

Once the position is inputted in the system 10, a switch interface 400,as illustrated in FIG. 21, is generated by the switch module, 80 usinghis/her own position data from other traders entered on the respectivetrader workstations 20 and uploaded to the switch mechanism 35. Theswitch interface 400 enables the user to search through the market, andview possible trading combinations of his/her portfolio and combinationsof his/her portfolio against positions from other counterparties whichhave been input into the system. This is referred to as positiondiscovery. The switch interface 400 can be reached by selecting theswitch engine button in the tool bar 132 of the command center interface130 (FIG. 5). For a given floating rate index (for example, a one monthLIBOR) 402, the switch engine interface 400 lists the net positions 404for each day 406 out 180 days. In addition, the possible switches 408,available switches 410, formulated forward rate 412, and a fair price414 are also listed for each day 406. By selecting a day 406, the switchinterface 400 displays all possible switches against that day. Thus, theuser can pick the days for which he/she is carrying the most risk. Anadvantageous feature of the switch interface is that the user isprovided with only combinations where he/she has a position and someoneelse has the opposite position, and both parties say each other's creditpreferences as described above.

The net position 404 is the position entered or modified by the user.Possible switches 408 are those switches for any given day with respectto the trader's own position. Note, a switch typically makes sense onlyif the trader's position is long one day and short on another day.

The available switches 410 are positions in other counterpartyportfolios that exactly offset the position of the user. Note that theswitch interface is configured to displays available switches up to thesize of the user's own position, and preferably does not disclose thename(s) of any counterparties until after a trade has been completed.This ensures the anonymity of the user, and does not disclose anymaterial position data to other traders.

The forward rate 412 is the current market forward rate calculated bythe system from other available market rates for the given date for thematurity of the underlying index maturity. The fair price 414 representsthe relative price between the two underlying FRAs, which is the basisupon which forward rate agreements are traded. The fair price 414 iscalculated from live market data taken from other financial instruments.While not designed to execute trades at the displayed fair price 414,the fair prices are an aid to users in gauging the fair value of themarket.

Once a user has found a switch that matches the needs of the user, thatis shown as an available switch 410, then the user may send a requestfor switch message by selecting the request for switch (RFS) button 416.In response thereto, an RFS message is sent anonymously to only theother counterparties of the selected offsetting positions. Anyone of thereceiving counterparties may then add the symbol automatically into amarket entry profile by selecting (i.e., clicking on) the message andcompleting the transaction utilizing the market entry interface 250, asdescribed herein. Upon completion of a switch by the switch mechanism35, the portfolio's of the counterparties are automatically updated toreflect the switch. In accordance with a feature of the switch engine,switch transactions can be accomplished in real-time.

As an example of a switch, a trader viewing the switch interface 400 mayselect (i.e., highlight) the “Thurs., Aug. 21” position, and then selectthe RIS button 416. The passive order interface 294 (FIG. 14A) thenprompts the trader with a quantity and price which the trader maymodify. The trader may then submit the request for the switch. Allanonymous counterparties that have an offsetting position then receive amessage in command center interface 130 (FIG. 5) notifying thecounterparty of the anonymous request for a switch. Any one of thecounterparty may then select the request message which causes therequest to be displayed in the market entry interface 250 (PIG. 12).From the market entry interface 250, the counterparty can hit therequest for switch or submit their own passive order.

The trader can update or modify his/her portfolio by selecting theUpdate button 418, which launches portfolio interface 380, as describedabove. The trader can then select an inputted amount 382 or a tradedamount 384 to enter or edit the displayed values as desired.

It should be noted that the present invention has application infinancial markets other than derivatives. For instance, in theinter-dealer market, a switch or swap may be a desirable means by whicha risk or inventory short fall is off-set. In particular, a security maybe borrowed or an open derivative position hedged with another position.For instance, in the U.S. Treasury bond market, it is conventional fortraders to buy and sell securities, and to hedge with the newest orbenchmark issues. The U.S. Treasury may issue new two year securitieseach month. For the first month, the new issue is the benchmark (oron-the-run) issue, and the other issues with a final maturity betweenone and two years are referred to as old issues. If a trader is asked tobuy an old issue, then the trader will sell the on-the-run as a hedgesince the on-the-run has the liquidity. Over time, the trader will mostlikely need to sell the old issue and buy back his/her hedge. A switchwith another dealer that has an opposite position provides cost and riskeffective method of effectuating such a trade.

However, the unwillingness of traders to disclose their position hasmade bond switches difficult. Thus, the switch engine of the presentinvention is a solution. The principals of the switch engine can besuccessfully applied to bond switches, as well as other financialinstrument switches. The switch engine interface 400 may need to beslightly modified wherein the instrument designation 402 is changed toreflect the new market, for instance, to Two Year U.S. Treasuries or 30FHLMC TBA. Further, the setting column 406 may be changed to reflect theindividual securities which may be switched, and the remaining columnsshould not need to be changed. However, a new column representing theduration of each security displayed should be added so that thesecurities can be duration weighed to ensure fairness.

In addition to the switch engine, the system 10 provides tradingmethodologies referred to as the auction and switch auction. Althoughauctions are held in a variety of markets, some of which are electric,the auction and switch auction have no known counterpart in thederivatives markets. The auction and switch auction tradingmethodologies were developed in order to provide an auto matchingprocess for switches. However, the system 10 can use these auctionmethodologies for auto matching for a wide variety of other financialproducts, not just switches.

Unlike traditional auctions, where once a trade is completed thecounterparties are free from future financial commitments, withderivatives trading, the counterparties may end up with multi-yearfinancial commitments to one another once a trade is executed. In orderto deal with this relatively unique problem, the auction and switchauction take the credit preferences of the users into account. Theauction methodologies herein are referred to as a two way Dutch auctionwith credit. In conducting such an auction, users submit orders into theauction module 81 of the trader workstation 20 (FIG. 3) whichcommunicates the information to the auction mechanism 34 of the centralprocessing center 12 (FIG. 2). The orders are submitted via an auctioninterface 430, as illustrated in FIG. 22A, by price, quantity, andaction.

With reference to FIG. 22A, the auction interface 430 includes a queuedorders window 432 into which the user enters an order, and a submittedorders window 434 which shows the orders submitted to the auctionmechanism 34 via the auction module 81. Orders can be added via the Addbutton 436. Orders are moved from the queued orders window 432 to thesubmitted orders window 434 by highlighting the order and then selectingthe Submit button 438. All entered orders in the queued orders window342 can be submitted at once by highlighting all the orders and thenselecting the Submit All button 442. Prior to submitting an order, theorders in the queued orders window 432 can be edited via the Edit button440 or canceled via the Cancel button 444

In accordance with the auction, the orders are filled at their enteredprice or better, and between counterparties that satisfy the creditpreferences of one another. The auction mechanism 34 then conducts theauction, preferably utilizing the following constraints and prioritiesto ensure fairness.

The auction price is calculated by finding the price at which the mostvolume is traded. This condition is sufficient to generate a fair price,and all transactions should be completed at this price. It is noted thatthis price is generated without taking credit into account. The matchingof orders is completed to ensure that credit preferences (includingcomplex rules) are safe guarded and to ensure that the minimum number oftickets are generated. The better submitted prices will have priority,and all orders at the auction-price are filled in proportion to eachother. Under these constraints, the auction mechanism 34 executes theauction, matching users and generating a settlement list. The settlementlist comprises the trades resulting from the auction.

The confirmation process is substantially the same as that forinteractive trades. The system 10 notifies the users of their fills.Finally, results will be made available to the user via a message to thecommand center interface 130 of each user.

In addition to the general auction facility described herein, thepresent invention also offers a dedicated limited auto-matching processfor switches referred to as the switch auction. The switch auction doesnot have to be a full auction, in that the price may be set by thesystem 10. The price will, however, be available before the commencementof the matching. This will allow all users to understand the levels thatwill be used before entering into the switch auction. This also allowsthe users to maintain control of their positions.

As with the general auction, the positions of each trader are loadedinto the system 10 utilizing a switch auction interface 460, asillustrated in FIG. 22B. The switch auction interface 460 has two parts,an auction list 462 and an auction status 464. In the auction list 462,various auctions and their respective statuses are listed by FLOPT andcurrency. In the auction status 464, the auction selected in the auctionlist 462 is displayed and identified (including the open and closeday/time). The positions 466 for respective dates 468 are entered by auser, and do not need to add to zero, but should include positions ofboth signs (i.e., long and short). The rate 470 is the price at whichthe auction is conducted. The rate 470 is displayed a predeterminedamount of time before the auction is conducted so that the participantshave the opportunity to step out of the switch auction if they sodesire. The rate is preferably based on available market factors, andmay be calculated by a calcserver (as described below). The resultscolumn 472 is the total trade amounts resulting from the auction. Theamount displayed in the results column 47 for a given date may be thecumulative amount from multiple transactions with multiple parties.Additional control buttons 474 enable the user to submit an order,cancel an order, cancel all orders, or change an order. The switchauction will auto-match the position, taking credit preferences of theusers into account so that (1) a maximum volume is executed and (2) aminimum number of tickets is generated.

The switch auction utilizes the above two rules to ensure fairness. Nouser will be given priority over any other user except as required tosatisfy the respective credit preferences. Preferably, only two-wayswitches will be offered. Switches are a risk management tool, andswitches generated between three counterparties introduces substantiallymore credit risk than a straight two-way switch.

At this point, the calcserver which calculates the auction rate andprice information, and other relevant data for operation of the system10 is described. The calcserver provides the switch mechanism 35 withthe forward rate for any given index for each day, the system pricequoted in the market entry interface 250, and OTC derivative pricesderived from the yield curve. The calcserver comprises a preprocessor, azero curve server, a FRA server and a Swap server. The preprocessorgathers real-time data from outside data vendors (such as Reuter orTelerate) and from internal system sources (such as data normallyentered into system 10), and prepares the data for processing by theother components of the calcserver. The zero curve server reads in themarket rates (including price and yield for a variety of classinstruments such as money market rates, swap rates, future prices, swapspread, bond yields and FRA's) as provided by the preprocessor, andgenerates therefrom the zeros and discount factors for each currency andlevel of credit. In particular, a zero coupon yield curve (i.e., zerocurve) comprises a set of points representing the calculated interestrate or discount fact from observable market rates across the termstructure (e.g., 0 to 30 years) such that any cash flow can bediscounted to today in one step without the consideration withdecompounding. Thus, there is a different zero curve for eachindex/currency pair. The FRA and Swap servers are instrument specificservers that calculate forwards, RQ (as defined above), durations andfair prices.

By way of example, the zero curve calculation arts from the measurementswith the shortest term structure in the money market rates (MMs). Theanalytics for finding points on the zero curve from MMs are as follow.The processed price of the MMs, end date of the MMs and the basis of theMMs (number of days in a year that the MMs is based on) are needed. Allof these are stored in a database 64 (FIG. 2). The processed price isthe only input that typically changes. The calculation represented bythe equation below will generate a new zero rate with the date of theend date of the MMs. The result will be a new zero point which will beadded to the rest of the generated zero points. The following equationfor Z(t) is the zero rate at the end date of the MMs:${z(t)} = {\left( {1 + {R_{mms}*\frac{t}{mmsBasis}}} \right)^{365/1} - 1}$where Rmms is the processed price of MMs, and t is the time in daysbetween the end date of the MMs and the current date.

After the MMs, the next instruments used according to term structure areeither the futures or FRA's. Since the futures and FRA's have similarterm structures, a choice will be made on which ones to use. Initiallythe futures will be used because they have high liquidity. However, itis believed that when FRA's Led on the system 10 reach a high level ofliquidity, they should be used instead.

When calculating zero points from the futures, the processed price, thefuture basis (number of days in a year that the future is based on), thestart date of the future, the end date of the future and the zero pointof the start date are needed. This data about the future will come fromthe preprocessor which is used to represent the future. The zero pointat the start date is found from previous zero points through${z(e)} = {\left\lbrack {\left( {1 + {{futRate}*\frac{e - s}{futBasis}}} \right)\left( {1 + {z(s)}} \right)^{s/365}} \right\rbrack^{365/e} - 1}$interpolation. The following equation for z(e) is the zero rate at theend date of the future.where futBasis is the number of days in a year that the future is basedoff, futBasis is the processed price of the future, e is the end dateminus current date, and s is the start date minus the current date.

The calculation of the FRA zero points is the same as for the futuresexcept that the processed price for the FRA and the FRAbasis are usedinstead of the processed price for the future and the futurebasis. Theinformation about the FRA will come from the preprocessor. The followingequation for z(e)_(fra) is the zero rate at the end date of the FRA:${z(e)}_{fra} = {\left\lbrack {\left( {1 + {{fraRate}*\frac{e - s}{fraBasis}}} \right)\left( {1 + {z(s)}} \right)^{s/365}} \right\rbrack^{365/e} - 1}$

The rest of the zero curve will be derived from swap information. Forthe first swap, the zero curve and the discount factor at each coupondate are used to calculate the zero rate and the end date in the swapusing the equation below for Z(t_(n)). When calculating other swap zeropoints, gaps may exist in the zero curve. Synthetic swap rates arecalculated where gaps exist to improve accuracy. The calculation of anormal swap rate and a synthetic swap rate are the same. The followingequation for Z(t_(i)) is the zero rate at the particular coupon date:${Z\left( t_{n} \right)} = {\left\lbrack \frac{1 + {{swapRate}*{Y\left( {t_{n - 1},t_{n}} \right.}}}{1 - {{swapRate}*{\sum\limits_{i = 1}^{n - 1}\quad{\frac{Y\left( {t_{i - 1},t_{i}} \right)}{\left( {1 + {Z\left( t_{i} \right)}} \right)}{t_{i}/365}}}}} \right\rbrack^{365/t_{n}} - 1}$where swapRate is tradePriceAdjust, t_(i) represents a coupon date, andY(t_(n−1),t_(n)) is the period in years between the two coupon dates.Once the trades have been executed and the term negotiation processcompleted, the system will initiate an automatic confirmation processwhich, in an embodiment of the present invention, will follow existingmarket practices. Accordingly, the system 10 will automatically send afax confirmation message to each counterparty detailing the transaction.The faxes should be sent immediately after a transaction is completed.The confirmations should follow a unique format, allowing the automatictransfer of these confirmations electronically.

This confirmation has been specially developed to allow for a standardformat covering all classes of financial contracts. The standardconfirmation follows the following format:

Section 1: Summary of the transaction.

Section 2: Counterparty details and commission.

Section 3: Transaction details.

Section 4: Term negotiation

This provides the users with adequate information to identify and/orrecord the transaction. The conformation, however, may be sent to thetraders any number of ways such as via e-mail, voice-mail, United StatesPostal Service, or commercial carrier (e.g., FedEx, UPS, etc.). Further,it is noted that the information provided can take many other formatswithin the scope of the present invention.

While the various interfaces to system 10 have been described herein asindividual windows, it is noted that multiple windows can be integratedto form a main screen 480 with multiple frames, as illustrated in FIG.23. For instance, a tools area 432 provides the trader with a set ofcustomized tools including graphs, market quotes, bond prices to yieldconverters, pricing tools, and MarketSheet™ applets. A service area 484provides various interfaces as described above on a temporary basis. Amessage center 486 displays the most recent RFP, RFS, Chat andadministrative messages, and is preferably configured as a drop-downwindow to display multiple current messages. A status bar 488 displaysuser status information. A woke area 490 provides for the entering ofdata into dialog boxes in a non-intrusive manner, plus the execution ofthe data function. A warehouse area 492 stores the most commonly usedinterfaces in a tabbed format, allowing the trader to retain theirpreferred set-up between sessions. Accordingly, the main screen 480provides enhanced functionality by integrating multiple interfaces in asingle window.

IV. Operation

As described above, the system 10 comprises the central processingcenter 12 that may includes multiple servers connected via anInternet-protocol network to the individual counterparties traderworkstation 20 which may be desktop computer workstations. Because ofthe open system architecture of the system 10, the present invention mayrun within the context of the internet browser 72 on the user's existingdesktop computer 20. The desktop computer 20 preferably includes anoperating system platform for which a Java-enabled Internet browser isavailable.

In order to provide the counterparties with anonymous credit preferencebased trading capability for a wide range of financial contracts whereeach side enters into a long-term contract with the others, the presentinvention is designed to be flexible enough to reflect several differentmeasures of credit risk, as generally described below with reference toFIG. 24.

With reference to flowchart 502 of FIG. 24, each business unit(counterparty) provides the group server 32 (FIG. 2) with detailedcredit preferences for each potential counterparty business unit's legalentity. The group server 32 then distributes the credit preferenceinformation in an anonymous format to the trade workstation 20 whichuses the credit preferences of each active business unit (counterparty)in the system 10 to prescreen the user's market orders (bids and offers)against the other counterparties' market orders. Thus, the creditpreference module 76 (FIG. 3) of each trader receives the creditpreference information defined by a first user with respect to a seconduser, as indicated by block 504. The credit preference module 76 thenreceives the credit preference information from the second user withrespect to the first user, as indicated in block 506. The creditpreference module 76 then determines which orders, on which financialinstruments, and with which counterparties, the user can deal. Thisinformation is coding on the posted prices utilizing color or anothernotational method such as symbols, as indicated in block 508.

In accordance with an aspect of the present invention, the prescreeningis a complex check to determine whether two particular counterpartieswill accept each other for a particular class of financial instrument,for a particular amount and for a particular maturity. This is a riskequivalent measurement, and is more than a simple yes/nopreauthorization matrix. More specifically, because each financialinstrument has different credit qualities, it is possible for aparticular counterparty to be willing to accept another particularcounterparty for one type of financial instrument but not another.Furthermore, it is also possible that a particular counterparty mayaccept the other for a particular financial instrument, but only for acertain length of time (i.e., maturity). The system 10 may also allowthe user to accept counterparties for different amounts at differentmaturities.

It is further noted that the system 10 divides counterparties into legalentities. These legal entities may be further divided into individualbusiness units. So, for example, Bank A may be a legal entity(counterparty) and Bank A might have a different business unit in threedifferent cities (e.g., Tokyo, London, and New York). In this example,the counterparty credit information is available at the legal entitylevel. So, for instance, if Bank A wishes to allow each of its businessunits to set their own credit preferences for other counterparties, thenthese credit preferences will be listed against the legal entity levelof all the other business units. In other words, business unit A at BankA can not say it will trade with desk A of Bank B but not desk B of BankB. The system 10 allows business units within a particular legal entityto inherit the credit preferences from other business units in the samelegal entity family, if so desired.

Once each business unit has inputted their individual creditpreferences, this credit preference information is maintained locally atthe inputting trader workstation 20, and transmitted to the group server32 of the central processing center 12. The central processing centerthen transmits a vector of encoded credit preference data to each userlogged on, wherein the data represents that preferences of the user tothe other legal entities and the preferences of other business units tothat user's legal entity for the affected instrument classes. Theencoded vector of credit preference data is accessible to any of thetrader workstations 20 in the system 10; however, the sensitive creditinformation of other counterparties is not available.

Once the user has inputted his/her business unit's credit preferences,the user is then able to select or filter messages on which financialinstruments and in which currencies the user wishes to receive updates,messages and prompts. The filters can be selected via the userpreference interface 148 to customize the order information presented bythe command center interface 130. This screening capability is providedto the user in order to prevent him from being overwhelmed by, and tosort through, the possibly thousands of different financial instrumentsin up to or more than 14 different currencies that the system 10 has theability to handle. Once these filters have been inputted into the system10, the user is able to view trading information on the currencies andfinancial instruments that have been selected for the user. This means,for example, that if the user has selected US dollars only, then theuser will preferably not see information on the Japanese Yen financialinstruments which are in the system 10 for trading.

Once the trading preferences of the user have been entered into thesystem 10, the user can proceed with trading. The user then activatesthe fully customizable, resizable market entry interface 250. The marketentry interface 250 enables the user to input many different financialinstruments which the user is interested in trading on one screen, andhave any number of profiles wherein each profile is a collection ofmarkets or a collection of financial contracts in the system 10.

A preferred embodiment accomplishes the inputting and referencing of thevarious financial instruments through the use of a unique set of symbolsreferred to as symbology. The symbology of the present invention isbased on a concept of subject based addressing whereby the user createsa symbol to uniquely define any one of many complex financialinstruments. The symbol denotes the financial instrument's parametersand attributes. The standardized symbology of the present invention isdesigned such that the users of the system 10 will recognize the meaningof the symbol when the users view the symbols. To further help the usersunderstand which financial instrument they are trading, a symbol may beidentified by the full subject name, an alias (in the case of the mostcommonly traded instruments), or a unique identifier (e.g., such as anumeric code). In order to help the users use the symbology to properlyexpress the financial instruments they want to trade, the system 10allows the users to construct symbols utilizing the symbol constructioninterface 270 (FIG. 13).

The symbology of the present invention, as described below and asillustrated flowchart 510 of FIG. 25, enables a user to input dataincluding a proposed trade of a financial instrument, wherein thefinancial instrument is advantageously defined by symbology comprising asource field, a class field, a symbol field and a currency field, asindicated by block 512. This abbreviated format for identifying afinancial instrument can then be easily transmitted to other userswithin the system 10, as indicated by block 514. At the receiving userstrader workstation 20, the proposed trade can be viewed by the tradersutilizing the symbology, as indicated by block 516. By defining thefinancial instrument using the symbology of the present invention, theusers can exchange a small amount of data that is translatable into adetail description of a financial instrument that is relatively complex.This reduces communication and processing overhead of the system 10 andsimplifies the user's efforts.

Once the orders have been inputted via the symbology, the market entryinterface 250 displays the best bid and best offer for each instrument,as well as the sum quantity available to trade at the best price andother relevant information. The order information (i.e., the bids andoffers for each instrument) is coded with the relevant creditpreferences, unless several prices are currently posted at the sameprice but have different credit status, in which case the market detailinterface 302 should be used. This is significantly different from someprior art systems which only show the best dealable price. The system 10presents the best price, irrespective of credit preferences or creditlimits. From market entry interface 250, it is possible for the user toexecute a trade directly if the credit preferences of both partiespermit. The user may also place a passive order from the market entryinterface 250.

The user also has the option of activating a market detail interface 302which enables a user to see the complete picture (i.e., depth) of allthe orders (e.g., bids and offers) available on a particular financialinstrument, coded with credit preference information. The market entryinterface 250 and the market detail interface 302 not only display thebest bid and offer, but each individual order in the system 10individually. Through the market entry interface 250 and the marketdetail interface 302, the user is provided the ability to select notjust the best bid or offer, but any bid and offer in the system 10. Thisis important because for credit reasons, the viewing counterparty maynot wish, or may not be allowed to, trade a particular bid or offer.This means that the best bid or offer in the system 10 is notnecessarily the best bid or offer available to that counterparty.

The credit preference information entered in the system 10 by each user,as described above, is used by both the central processing center 12 andthe transmitting business unit servers 18 to prescreen the bids andoffers, and to market orders in the system 10 before they are viewed atthe trader workstations 20 of the respective client sites 14. Thesensitive credit preference that indicates which counterparties areacceptable, and under what terms, is preferably maintained at thetransmitting trader workstation 20 and the central processing center 12.The other viewing users do not receive or have access to the creditinformation of the other users. At the receiving business unit's server18, a check is performed to determine whether the receiving client site14 will accept the particular bid or offer from the transmitting legalentity. The summary and relevant data is transferred in an encryptedform to trader workstations 20. The credit check may be re-performed atthe time of a transaction by the central site 14 and/or the centralprocessing center 12.

The credit preference screening of the present invention enables thedisplay of all passive orders in the system 10 and their relevant creditstatus with regard to the viewer on both the market entry interface 25and the market detail interface 302 as follows: 1) green—this means thatthe viewer accepts the posting counterparty, and the postingcounterparty accepts the viewing counterparty; 2) yellow—this means thatthe viewing counterparty will accept the posting counterparty but thatthe posting counterparty will not accept the viewer, 3) red—that theviewer will not accept the poster; 4) blue—that the bid or offer beinglooked at is the viewer's own; 5) white—used on the market entryinterface 250 to denote when two or more orders are placed at the sameprice but with different credit preferences. The use of color codingenables the system 10 to preserve the anonymity of the users while stillenabling the viewing business units to receive credit information aboutthe bids and offers they are viewing. In the event the user is colorblind, the system 10 also include the option to display small symbolsnext to each price to indicate the relevant credit status to the viewer.

If the viewer wants to trade a green bid or offer, then the system willpermit this to be executed right away. Further, if the activecounterparty to the transaction, that is, the viewer who hit the bid orlifted the offer, chooses to execute the full size of the amount onoffer or bid and there are no more orders at the same price, the viewerwill be prompted with the ability to ask the other counterparty to domore. This will-do-more feature is preferably restricted to apredetermined time-limit in which the receiver of the request mustrespond. The receiver of the request may agree to accept the increasedquantity (or part of the increased quantity) at the previously agreed toprice or the request will lapse. The will-do-more feature may berepeated as many times as the users desire. The will-do-more featuredoes not necessarily check credit preferences once this process hasbegun because both users know the identities of each other at thispoint. This forces the users to take responsibility for further creditapproval beyond the point of the initial trade amount.

If the order being viewed by the user is yellow, then the viewer willaccept the poster but the poster will not accept the viewer. In thiscase, the system 10 enables the viewer to send a credit override messageto the poster of the bid or offer whereby the sender of the creditoverride reveals his/her identity to the poster and asks the poster toreconsider whether or not the poster will do the requested trade withthe viewer. In this case, the user which sent the credit override willbe identified to the poster, but at no time will the sender of thecredit override find out who they revealed themselves to. If the posterchooses to accept the credit override, then the poster may also chooseto impose additional credit requirements on the viewer in order toaccept the transaction. These additional credit requirements would be inthe form of a standard mutual put clause in the confirmation of thetrade. The viewer will have the opportunity to either accept or declinethe additional credit requirements. The credit override function doesnot in anyway change the credit preferences which each user previouslyinput into the system 10. The credit override is preferably on aper-transaction basis.

If the bid or offer viewed by the viewing trader is in red, then theviewer will not accept the poster. Despite the fact that the viewerknows he/she will not accept the poster, the viewer does not know whichamong the counterparties he/she will not accept is the poster. Theviewer is thus not able to identify the poster, preserving the anonymityof the system 10. If the poster does not activate the credit override,then no trade will be able to take place.

If the bid or offer displayed is in blue, then the order is the poster'sown order. The system 10 does not prevent different users within thesame client site 14 from trading with each other.

From both the market entry interface 250 and the market detail interface302, it is also possible for the user to send a request-for-pricemessage to the other counterparties that are interested in the requestedfinancial instrument. The request-for-price enables a user toanonymously broadcast to other interested market participants.

With reference to FIG. 26, a flowchart 520 generally describes the stepsof a trade. Initially, the first user and the second user are providedwith essentially real-time order information regarding more than onefinancial instrument typically via the market entry interface 250, asindicated by block 522. The order information preferably includes arequest to buy or sell a financial instrument such as an OTC derivative.At block 524, one of the first or second users initiates the tradingprocess on an order selected from the order information provided by theother of the first or second users. The credit preference information ofeach user is then used to verify the trade eligibility of the first andsecond users with regard to one another based on the selected order, asindicated by block 526. One or both of the first and second users arethen able to request an increase in the quantity of the order, asindicated by block 528. If an increase is requested, the request isprocess at block 530. Alternatively, if there is no request to increasethe quantity at block 528, it is then determined that block 532 if thereis a request to negotiate terms of the order, and more particularly, thenoncommercial terms of the financial instrument underlying the order. Ifthere is a request to negotiate terms by one of the users, then therequest is processed at block 534. If there is not a request tonegotiate terms, then an acknowledgement is sent to both userssignifying the execution of the trade, as indicated by block 536.

The trade process as described above with reference to FIG. 26 can alsobe described from the perspective of the first and second users. Forinstance, with reference to FIG. 27A, a flowchart 540 generally depictsthe steps of a trade from the perspective of a passive user. Initially,at block 542, the credit preferences of the user are inputted anddistributed to the other users for effectuating the credit preferencescreening. At block 544, the user sends an order to system 10 fordistribution to the other users requesting a trade on a financialinstrument. The user that placed the order must then wait for anothertrader to hit or lift the passive order, thereby executing the trade.Both parties to the trade will receive an execution notification whichwill allow one or both users to request an increase in quantity, asdetermined by block 548. If this request is received from the partyhitting or lifting the passive order, the first user accepts, denies, oramends the requested increase, as indicated by block 550. If there is norequest to increase a quantity, then it is determined at block 552whether there is a request to negotiate terms of the financialinstrument. This feature allows the users to change the default valuesfor the non-commercial terms of the financial contract, as indicated byblock 554. Next, the first user will receive an acknowledgement of theexecution of the trade with the second trader, as indicated by block556.

With reference to FIG. 27B, a flowchart 560 generally illustrates thesteps of a trade from the perspective of the active user that lifted orhit the passive order. At block 562, the second user receives an orderfrom the first user requesting a trade on a financial instrument. Theorder is then checked for trade eligibility based upon the creditpreferences of the first and second users, as indicated by block 564.The order is coded with appropriate credit information based upon thecredit check, as indicated by block 566. The coded order is thenpresented to the second user based upon a preference or filter set bythe second user to view orders of the present instrument, as indicatedby block 568. The second user then initiates a trade by lifting orhitting the order, as indicated by block 570. In block 572, it isdetermined if there is a request to increase quantity. If there is not arequest to increase quantity, then the request is processed at block574. If there is not a request to increase the quantity, then it isdetermined at block 576 whether there is a request to negotiate terms ofthe financial instrument. This feature allows the users to change thedefault values for the non-commercial terms of the financial contract,as indicated by block 577. Next, an acknowledgement is received by thefirst and second users indicating that the trade has been executed, asindicated by block 578.

Another feature of the present invention is the position discovery asillustrated by a flowchart 580 of FIG. 28. At block 582, risk positionportfolios are received from the users of system 10. At block 584,relative position information is calculated for each user so that eachuser may be presented with possible trading combinations for theirportfolios, and combinations of their portfolios against positions fromthe other users. The possible trading combinations are coded with creditpreference information in accordance with the present invention. It isthen determined at block 586 if a switch is requested. If a switch isnot requested, then the process ends. However, if a switch is requestedat block 586, then a switch is executed at block 588. The execution ofthe switch is performed in substantially the same manner as any othertrade, as described above. Upon execution of the switch, the positioninformation of each party to the switch is automatically updated toreflect the switch, as indicated by block 590.

A blotter is provided to enable the user to keep track of all the ordershe/she has inputted into the market. The blotter is preferably a screenwhereby once it is activated, it displays all the outstanding orders auser has in the system. The blotter enables the user to monitor allhis/her outstanding orders in many different instruments conveniently inone place. Preferably, there are two types of blotters. The first is theoutstanding order blotter 320 which offers several functions to the userfor managing his/her orders, such as the ability to change the price, orsize of an order. This is accomplished through the use of dials on thewindows which enable the user to quickly dial up or down the pricewithout needing to cancel and then resubmit the order. This edit processshields the user from the complexity of order management regardingchanged orders. This also prevents the user from accidentally havingduplicate or no orders in the system 10. The outstanding order blotter320 also enables the user to quickly suspend (or refer) all of his/heractive orders in the system 10, and then re-input them one by one ordelete them as necessary. Yet further, the outstanding order blotterenables the trader to cancel one or all of his orders. The second typeof blotter is the historical order blotter 330. From the historicalorder blotter, it is possible for the user to view all of his/herpreviously executed trades and the respective status, as well as thosethat have been canceled.

In order to address the needs of interest rate swap traders andportfolio managers, the system 10 may include a function known as theswitch engine. The switch engine is implemented by a switch interface400 and enables the user to input an entire portfolio of interest ratereset risks into the system 10, and then view out into the future for anunlimited time horizon on a daily basis. In a preferred embodiment, theuser inputs the size (in millions) and the direction (receiving orpaying) of the reset risk portfolio into the system 10 on a wide rangeof the most common interest indices (i.e., 1 month US dollar libor, 3month US dollar libor, 1 month DEM libor, etc.) The portfolio can beinput either directly through the portfolio interface 380 (FIG. 21), orby uploading a file with the required information. Once the informationhas been input into the system 10, the user is then asked to confirm theinput. Once this information has been confirmed, the user then has theability to anonymously look at his/her interest rate reset risk positionrelative to all other counterparties who have inputted such informationto determine based upon credit preferences, which trades are availableto him/her in the system 10 to off-set his/her interest rate resetrisks. Once the user has located these trades, the user can thenanonymously send a request-for-switch to the other counterparties in anattempt to initiate a trade.

The system 10 further provides the functionality to permit the tradingof various financial instruments via an auction function, as generallyillustrated in a flowchart 600 of FIG. 29. The system performs what isreferred to herein as a two way Dutch auction with credit preferences.In this auction methodology, users submit orders into the auction givingboth the price and the quantity at which they wish to trade, asindicated by block 602. The auction process then begins by calculatingthe price at which the most volume is traded, as indicated by block 604.This is called the auction-price. The auction-price is a fair price atwhich all transactions will be completed. In this calculation, thecredit preferences of the various counterparties are not yet taken intoaccount. At block 606, the system matches up orders such that all creditpreferences are taken into account such that the minimum number oftickets are generated. The better submitted prices have priority, andall orders at the auction-price are preferably filled in proportion toeach other. In a preferred embodiment of the auction feature, theauction process could be conducted a few times a day in order tomaximize liquidity. The system also offers the functionality to enablethe user to trade forward rate agreement switches and other switchproducts in an auction environment similar to that described previously.

The system then automatically generates a confirmation for eachtransaction and sends it electronically via email, fax, or another meansto the counterparties of each executed transaction, as indicated byblock 608. This unique confirmation process has been designed to use astandard and consistent format for all financial instruments.

At this point, a more detailed description of the operation andfunctionality of the auction mechanism 34 is provided. With reference toFIG. 30, the auction mechanism 34 initially receives an order list fromthose traders wishing to participate in an auction, as indicated byblock 620. The orders within the order list are separated into a BuyListand SellList, as indicated by block 622. At block 624, a price list isgenerated and sorted from highest price to lowest price. It is thendetermined at block 626 whether an auction will take place bydetermining if the price list is empty. If the price list is empty, thenno auction takes place, as indicated by block 628. If the price list isnot empty, then the average auction price is calculated, as indicated byblock 630, and as described in greater detail with reference to FIG. 31.Next, the orders are matched such that the minimum number of tickets aregenerated, taking into account the credit preferences of all parties, asindicated by block 632, and as described in greater detail withreference to FIGS. 32A and 32B. Once the orders have been matched, asettlement list is generated, representing the execution of transactionsvia the option, as indicated by block 634.

With reference to FIG. 31, the average auction price is calculate. Inparticular, beginning at block 640, the initial parameters areestablish, such as i=1, j=1, difference equal s1−b1; k=2, and N=size ofprice list. In addition, the total amount in the BuyList is B_(i), andthe total amount in the SellList is S_(N−i+1). Next, it is determined atblock 642 whether k=N+1. If so, then the average auction price is P_(L).If it does not, then it is determined at block 644 whether difference isgreeter than 0. If it is, then parameter j is set to j=j+1, theparameter difference is set to difference=difference+B_(j) and theparameter k is set to k=k+1, as indicated by block 646. If not, then theparameter i is set to equal i=i+1, the parameter difference is set todifference=difference+S_(i) the parameter k is set to k=k+1, asindicated by block 646. The steps of block 642-648 are repeated untildetermination is made at block 642 that k=n+1.

With reference to FIG. 32, the step of matching orders in an auction isdescribed in greater detail. In particular, items in the BuyList andSellList are eliminated according to the average auction price, asindicated by block 650. It is then determined at block 652 whether thesize of BuyList is greater than zero and the size of SellList is greaterthan zero. If one or the other is not greater than zero, then thesettlement list is generated, as indicated by block 654. If both theBuyList and SellList are greater than zero, then the parameter Bsum isset to equal the total volume in BuyList and Ssum is set to equal thetotal volume in SellList, as indicated by block 656. It is thendetermined at block 658 if Ssum is greater than the Bsum. If it is, thenthe parameter list1 is set to equal SellList and the parameter list2 isset to equal BuyList, as indicated by block 660. Next, the order1parameter is set to equal to the first order in list1 and order1 isremoved from list1, as indicated by block 662. The maximum/minimum andcredit miles are then applied to search the BuyList for matching order2.A matching order2 is located and a trade is generated between order1 andorder2, as indicated by block 666. If at block 668 it is determined thatSsum is not greater than Bsum, then parameter list1 is set to equalBuyList and list2 is set to equal SellList, as indicted by block 668.Next, order1 is set to equal the first order in list1 and order1 isremoved from List1, as indicated by block 670. Next, list2 is searchedin order to find a match to order1 using the maximum-minimum rule andthe credit preferences associated with the orders, as indicated by block672 and described in greater detail with reference to FIG. 33. A tradeis then generated between order1 and order2, as indicated by block 674.

With reference to FIG. 33, the application of the maximum-minimum ruleand credit rules satisfying an order are described in greater detail.Initially, it is noted that the parameter volume is equal to the volumeof an order, and more particularly, of order1. At block 680, it isinitially determined whether the parameter volume equals 0 for order1.If it does not equal zero, then it is determined at block 682 whetherlist2 is empty. If list2 is not empty, then list2 is searched for thefirst matching order, as indicated by block 684. Once a matching orderis located, then the volume traded will equal to the minimum as definedby the credit preferences of either party, the volume of order1, or thevolume of order2, as indicated by block 686. It is then determined ifthe trade volume is 0, as indicated by block 688. If the trade volume is0, then the process begins again at block 680. If the trade volume isnot to 0, then trade is generated and placed in the settlement list, asindicated by block 690. In addition, at block 692, order2 is removedfrom list2. Next, the volume of order1 and order2 are updated by settingthe respective volumes to the previous volumes minus the trade volume,as indicated by block 694. It is then determined at block 696 if thevolume of order2 is equal to zero. If it is not, then order2 is placedback in a temporary list and a credit of the parties placing order1 andorder2 are updated, as indicated by block 698. Once the volume of order1is determined to be zero, then it is determined at block 702 whether thetemporary list is empty. If it is not, then the temporary list is mergedwith the BuyList, as indicated by block 704. Subsequently, the processends.

The operation of the central precessing center 12 is now generallydescribe with reference to FIG. 34 which functionally depicts the groupserver mechanism 32, the auction mechanism 34 and switch mechanism 35,the market inventory module 38, the execution module 40, and thesettlement module 42. A legend 710 is provided to the denote the flow ofthe different orders, interactive and switch orders, auction orders, andswitch auction orders, between the group server mechanism 32, theauction mechanisms 34, the market inventory module 38, the executionmodule 40, and the settlement module 42. Beginning with theinteractive/switch order grated by the user at one of the traderworkstations 20, the central processing center 12 initially receives theinteractive/switch order 712 at the group server mechanism 32. At thegroup server mechanism 32, an order record is created, the creditpreferences of the users are checked to assure the trade conforms to thecurrent credit preferences of the users, and a transaction order iscreated. If the order is passive, then it flows through to the marketinventory module 38 where is it distributed to the trader workstations20 for viewing via respective market detail interfaces 302 of the userslogged on the system 10. If the order is active, then it flows throughto the market inventory module 38 where order matching occurs if theorder is a part of an auction, and pre-execution of the order alsooccurs. Pre-execution may include, for instance, a backed credit checkto ensure up to date credit preferences and to accommodate complexchecks. Further, in a manner that is transparent to the users, themarket inventory module 38 requires the trader workstations 20 of therespective users that are a party to the trade to respond with anacknowledgement to assure that there has been no loss of communicationor that one of the users has not logged off. Upon receiving theacknowledgement, the market inventory module 38 executes the trade andthen publishes the updated volume and status to the users logged on tothe system 10 for viewing via respective command center interface 130 ofthe users.

Next, the execution module 40 will, upon request of one of the usersthat were a party to the trade, enables the quantity of the trade to beincreased via the will-do-more feature. This will typically be the caseunless the full quantity of the instrument is transacted. Otherwise, theexecution module will initiate the confirmation process which includesan opportunity for either of the users that were a party to the trade toenter into term negotiations.

The order the flows through to the settlement module 42 which initiatesthe settlement process. The settlement module allows for symbolexplosion by the users to view the exact terms of the contract. Further,a settlement module calculates the commission based upon the order whichends the process, thereby noting the end of the order execution process.

In the case of an auction, an auction order 714 received by the auctionmechanism 34. The auction module 34 enables auction and switch auctionfunctionality of the present invention. The auction module initiallyreceives the auction orders 714 a from a plurality of users during acountdown to the actual auction time. Once the auction time has arrivedand the auction orders have been submitted, the auction mechanism 34performs the auction matching with credit preferences of the users takeninto account. The auction matching performed by the auction mechanism 34is in accordance with the present invention, that is, the auction isbased on a fair price and executed for a maximum volume traded with aminimum number of tickets generated. From the auction mechanism 34, oncethe counterparties have been matched the market inventory serveressentially treats the resulting auction orders as though it would aninteractive/switch order 712. In particular, the market inventory module38 perform order matching, pre-execution, acknowledgement, tradeexecution and volume/data publishing.

The auction order 712 is then delivered to the execution module 40. Atthe execution module 40, an auction order and a switch auction order aretraded slightly different. For instance, an auction order may beincreased in quantity by one of the users that is a party to the auctionorder via the will-do-more. On the other hand, switch auction orders donot make use of this feature, but will go directly to the confirmationprocess. Further, where auction orders may also have theirnon-commercial terms negotiated using the term negotiation feature,switch auction orders will flow to the settlement module 42 directlyafter confirmation. Both auction orders and switch auction order arethen received by the settlement module 42 which performs essentially thesame operations to the auction order as it does to an interactive/switchorder 712. Specifically, the settlement order 42 provides similarexplosion and commissioned calculations which complete the orderprocess.

In the drawings and specification, there have been disclosed typicalpreferred embodiments of the invention and, although specific terms areemployed, they are used in a generic and descriptive sense only and notfor purposes of limitation, the scope of the invention being set forthin the following claims.

1-11. (canceled)
 12. A system for facilitating derivative trading, saidsystem having a plurality of interconnected trader nodes that exchangeorder information, each trader node comprising: a trader module thatreceives real-time order information and presents said real-time orderinformation to a trader according to customized profiles defined by saidtrader; a credit preference module that includes credit preference datainputted by said trader for use in determining trade eligibility oftrades proposed in said real-time order information with a second traderand a multi-rule measurement configured to provide more than one rulefor enabling credit rating of at least one of financial instruments andother traders; and an interface to a communications network thatinterconnects said plurality of trader nodes.
 13. The system of claim12, wherein one of the rules of the multi-rule measurement a enablescredit rating based on instrument maturity.
 14. The system of claim 12,wherein said trader module includes a plurality of selectable traderdefinable formats that said real-time order information can bepresented.
 15. The system of claim 14, wherein said trader definableformats include a market entry interface that provides tradinginformation on a trader defined list of financial instruments, and ablotter interface that provides order information of said trader. 16.The system of claim 14, wherein said trader definable formats include amarket detail interface that includes system wide orders on a specifiedfinancial instrument.
 17. The system of claim 12, wherein said tradermodule presents said order information utilizing instrument symbology.18. The system of claim 12, further including a switch module thatreceives interest rate swap positions from said trader and said secondtraders, and that determines relative position information for saidtrader.
 19. (canceled)
 20. A computer program product for use with adata processing system for facilitating derivative trading, saidcomputer program product comprising: a computer usable medium havingcomputer-readable code means embodied in said medium, saidcomputer-readable code means comprising: a trader software module forreceiving real-time order information and presenting said real-timeorder information to a trader according to profiles customized by saidtrader; and a credit preference software module for determining tradeeligibility of proposed trades between said trader and a second trader,wherein said credit preference software module includes creditpreference data inputted by said trader and a multi-rule measurementconfigured to provide more than one rule for enabling credit rating ofat least one of financial instruments and other traders.
 21. A computerprogram product for use with a data processing system for facilitatingderivative trading, said computer program product comprising: a computerusable medium having computer-readable code means embodied in saidmedium, said computer-readable code means comprising: a creditpreference module for determining trade eligibility of proposed tradesbetween a trader and a second trader wherein said credit preferencemodule includes credit preference data inputted by said trader and amulti-rule measurement configured to provide more than one rule forenabling credit rating of at least one of financial instruments andother traders; a market module that provides said first and secondtraders with essentially real-time order information regarding more thanone financial instrument, said order information including requests tobuy financial instruments and requests to sell financial instruments;and an execution module associated with said central processing centerthat can process a trades conditioned upon determination of tradeeligibility by the credit preference module initiated by one of saidfirst and second traders which desires to trade on an order proposed insaid order information by the other of said first and second traders.22-43. (canceled)
 44. A computer program product for use with a dataprocessing system for facilitating derivative trading, said computerprogram product comprising: a computer usable medium havingcomputer-readable code means embodied in said medium for facilitatingderivative trading between a first party and a plurality of potentialtraders including a second party, all of which are interconnected by acomputer network, said computer-readable code means comprising: computerreadable code means for inputting credit preference data on thepotential traders for distribution to the potential traders, said creditpreference data sufficient to allow a multi-rule credit ratingconfigured to provide more than one rule for enabling credit rating ofat least one of an instrument and the potential traders; computerreadable code means for sending an order from the first party to thepotential traders requesting a trade on the instrument; and computerreadable code means for receiving an acknowledgement from the secondtrader initiating a trade with the first trader on the order.
 45. Asystem for facilitating derivative trading, said system having aplurality of interconnected trader nodes that exchange orderinformation, each trader node comprising: a trader module that receivesreal-time order information and presents said real-time orderinformation to a trader according to customized profiles defined by saidtrader and is configured to perform a second and final credit preferencecheck prior to execution of a trade; a credit preference module thatincludes credit preference data inputted by said trader for use indetermining trade eligibility of trades proposed in said real-time orderinformation with a second trader and a multi-rule measurement configuredto provide more than one rule for enabling credit rating of at least oneof financial instruments and other traders; and an interface to acommunications network that interconnects said plurality of tradernodes.